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Old 11-13-17, 08:31 PM   #26
StupidlyBrave 
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To borrow and hack up a proverb:
The best time to invest in your 401(k) is twenty years ago. The second-best time is today.
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Old 11-13-17, 09:33 PM   #27
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Nice to hear from you EJ123. You must be a resident, specialty?
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Old 11-14-17, 04:16 AM   #28
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To borrow and hack up a proverb:
The best time to invest in your 401(k) is twenty years ago. The second-best time is today.
.. and never borrow $$ from your 401K.
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Old 11-14-17, 10:28 AM   #29
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.. and never borrow $$ from your 401K.
I've done it before, and was fortunate enough to be able to pay myself back quickly (within 6mo), it was to bridge a house sale/purchase.

I kind of thought, wouldn't it be better to pay myself interest, than to pay somebody else interest?
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Old 11-14-17, 10:35 AM   #30
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Nice to hear from you EJ123. You must be a resident, specialty?
Good memory! In internal med. Now it's a battle to find time to ride now a days.
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Old 11-14-17, 11:25 AM   #31
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I've done it before, and was fortunate enough to be able to pay myself back quickly (within 6mo), it was to bridge a house sale/purchase.

I kind of thought, wouldn't it be better to pay myself interest, than to pay somebody else interest?
If my clients ask me about borrowing from their plans, a short term loan like this is what I recommend. The problems with a loan from the plan are:

1. Your money is out of the market and invested in a low-rate fixed income security (the loan).
2. If you lose your job the loan is usually due and payable. If you can't pay it back it is taxable income to you. If you are under age 59-1/2 this comes with a 10% penalty in addition to the regular income tax. Some states also have a penalty. A large loan can lock you into a job, I've seen this happen where someone could not afford to change jobs because of the 401(k) loan.
3. The interest you pay to the plan goes to your own account, but it is not tax deductible on your income tax return. So you are putting after-tax money (the interest) in the plan, and when you eventually draw out that money in retirement it is taxed again.

A short term loan is no big deal. Borrow $10K for 6 months at 5% the interest is only $250, so pretty minimal financial impact overall. Certainly well worth it to facilitate the purchase of a home. Also the expense, time and hassle of getting a loan elsewhere can make a 401(k) loan a good option. But again, understand what you are doing and the drawbacks.
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Old 11-14-17, 11:30 AM   #32
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I've done it before, and was fortunate enough to be able to pay myself back quickly (within 6mo), it was to bridge a house sale/purchase.

I kind of thought, wouldn't it be better to pay myself interest, than to pay somebody else interest?
Your payback period was short enough that it was your best option. I should have qualified it as multiple year payback periods.
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Old 11-14-17, 11:34 AM   #33
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But still, wouldn't the relatively high interest rate of a loan be at least as good as the growth rate of the fund, so it works out pretty much as a wash?
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Old 11-14-17, 11:51 AM   #34
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But still, wouldn't the relatively high interest rate of a loan be at least as good as the growth rate of the fund, so it works out pretty much as a wash?
Well I don't know what your plan interest rate is. If the loan is at 4-5% and the market is returning 8% you're losing out. Of course this works the other way too, if the market goes down the money out for a loan does not.

But you're paying your own interest. So if you're paying a higher rate that equals what the plan investments might have returned, the plan is in the same place but you have less money in your pocket.

Again, short term it's not a big deal regardless.
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Old 11-14-17, 01:18 PM   #35
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But still it's better than taking out a same-rate loan from a bank, right? If you need a loan...
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Old 11-14-17, 01:46 PM   #36
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But still, wouldn't the relatively high interest rate of a loan be at least as good as the growth rate of the fund, so it works out pretty much as a wash?
Don't forget the compounding affect of the money staying in the account rather than borrowing and just paying back principal and interest. Again, I'm referring to longer loan periods.
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Old 11-14-17, 02:48 PM   #37
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Again though, if you need a loan, isn't it better to repay the interest to yourself than to a bank?
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Old 11-14-17, 04:52 PM   #38
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Again though, if you need a loan, isn't it better to repay the interest to yourself than to a bank?
Depends.

There are quite a few scenarios where it isn't.

ex: stock market soars and you miss out on big gains.
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Old 11-14-17, 05:00 PM   #39
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Depends.

There are quite a few scenarios where it isn't.

ex: stock market soars and you miss out on big gains.
^^ This ^^
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Old 11-14-17, 05:14 PM   #40
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Exactly right, too many possible scenarios to generalize.

Nothing magic about paying interest to yourself, sort of a left-pocket-to-right-pocket transaction, except the taxman takes a cut as you go because you have to pay income tax on the money you earn to pay the interest back.
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Old 11-14-17, 08:51 PM   #41
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If you take a loan from your 401(k) and you have difficulty repaying... do you cut off one of your own digits yourself?
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Old 11-14-17, 10:39 PM   #42
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If you take a loan from your 401(k) and you have difficulty repaying... do you cut off one of your own digits yourself?
No, the IRS will do it for you.
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