Social Security - your thoughts?

#706
#706
utvolpj said:
Double tax plus the loss of any possible gains on the account. I've never seen it described as a positive way to save cash but ok.
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You haven't explained the 'double tax' element in such a way that I understand. All loan payments are paid with after tax money unless the loan repayment is considered a pre tax business expense.
I understand the opportunity cost of missing out on the gains from the money borrowed. But that does not take into consideration the gains (if possible) on the purchase...like an appreciating asset.
 
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#707
#707
McDad said:
You haven't explained the 'double tax' element in such a way that I understand. All loan payments are paid with after tax money unless the loan repayment is considered a pre tax business expense.
I understand the opportunity cost of missing out on the gains from the money borrowed. But that does not take into consideration the gains (if possible) on the purchase...like an appreciating asset.
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What peaks my interest is using it to buy property, if I'm loaning myself money and paying myself interest on an income producing asset how do I lose?

Also brings up a question, I wonder if you could use that loan to buy an asset to hold within a retirement account?
 
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#708
#708
hog88 said:
What peaks my interest is using it to buy property, if I'm loaning myself money and paying myself interest on an income producing asset how do I lose?

Also brings up a question, I wonder if you could use that loan to buy an asset to hold within a retirement account?
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Self Directed IRAs are an established retirement instrument. In those you can invest in whatever you choose. Gold, real estate, etc.
I don't know if that can be set up as a Roth or not.
 
#709
#709
McDad said:
You haven't explained the 'double tax' element in such a way that I understand. All loan payments are paid with after tax money unless the loan repayment is considered a pre tax business expense.
I understand the opportunity cost of missing out on the gains from the money borrowed. But that does not take into consideration the gains (if possible) on the purchase...like an appreciating asset.
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You're repaying pretax money with taxed then you pay taxes when withdrawn in retirement.

Most will stop funding retirement while repaying so that's more lost opportunity. There's also the possibility of default or that it's tied to your job and that is lost. There could be some scenarios where it works but it should not be common imo
 
#710
#710
utvolpj said:
You're repaying pretax money with taxed then you pay taxes when withdrawn in retirement.
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Correct. You've shared this and I understand it. Here's where I think it is a non issue.

All the 401k is taxed upon withdrawl. It makes no difference if you've borrowed from it or not. Secondly, if I borrow 100k from my local bank, that payment to the bank is paid with after tax dollars. It's after tax either way whether I pay myself or the bank.
 
#711
#711
McDad said:
Correct. You've shared this and I understand it. Here's where I think it is a non issue.

All the 401k is taxed upon withdrawl. It makes no difference if you've borrowed from it or not. Secondly, if I borrow 100k from my local bank, that payment to the bank is paid with after tax dollars. It's after tax either way whether I pay myself or the bank.
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Sure but there was never the opportunity from the bank to keep that $100k pretax. You get that opportunity with it sitting in a 401. The loss of investment for most people is not zero either

If you did it in 08-09 to buy property or a couple of years ago to buy Bitcoin then it hurts. Lose your job and have the whole loan due it could break you. As I said there are times but there's a reason it's not a recommended vehicle for most
 
#712
#712
utvolpj said:
Sure but there was never the opportunity from the bank to keep that $100k pretax. You get that opportunity with it sitting in a 401. The loss of investment for most people is not zero either

If you did it in 08-09 to buy property or a couple of years ago to buy Bitcoin then it hurts. Lose your job and have the whole loan due it could break you. As I said there are times but there's a reason it's not a recommended vehicle for most
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Ok. I appreciate the cautionary effort.
 
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#715
#715
utvolpj said:
Except the 401k is pre-tax.
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Except for the Roth 401K. Can one take a loan out of their Roth 401K and the rules be applied the same for repayment of loan? I have no interest in taking a loan out of my 401K, just curious if anyone knows. On another note, with the new legislation now, catch up contributions for those over 50 have to be deposited into a Roth account starting this year. Those pesky politicians want more of our money on the front end.
 
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#719
#719
InVOLuntary said:
Back when I was a youngin' my wife and I needed to do a renovation on a rental property. We borrowed some of our 401K. Neat thing about it, all the interest we paid went back into 401K.
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IMO

Taking a loan against your 401k should be the last option.

Example: you borrow $75k. You average a ROI is 14% (my average over the past 5 years). You pay yourself back the $75k plus 6% interest. You just lost 8% over the 5 years that you’ve paid back that loan.

Always try a bank loan first. Even if you’re paying a little more interest your money is still working for you.

If you’re average ROI is less than the interest on your loan then of course you should borrow from your 401k
 
#720
#720
hog88 said:
Can you use it for anything you want or are uses limited?
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yes but if you get fired from your job or leave you will be forced to pay it back entirely at once. Most 401ks will also have a limit on how many loans you can have at once. Mine only allows one. Otherwise if you withdraw early you have to file a "hardship request"
 
#722
#722
MOOOOONEY said:
IMO

Taking a loan against your 401k should be the last option.

Example: you borrow $75k. You average a ROI is 14% (my average over the past 5 years). You pay yourself back the $75k plus 6% interest. You just lost 8% over the 5 years that you’ve paid back that loan.

Always try a bank loan first. Even if you’re paying a little more interest your money is still working for you.

If you’re average ROI is less than the interest on your loan then of course you should borrow from your 401k
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Obviously it depends on your investments and length of loan. We didn't borrow much and the term was short like 2 years or less. Her options in her 401 K were very limited and her return sucked. She didn't get to choose individual investments but categories i.e. risky, mix, low risk. She is very risk adverse so she refused anything other than low risk, no matter how much I pushed. "It's my money, I'll do what I want. You have yours, you do what you want." 😅

Funny thing, when I left a company years ago, I rolled a very small 401K into a self directed 401K. I wasn't able to contribute to that account so I had to do other investment accounts. But, I did play with that money, buying and selling over the years. Never reinvesting dividends. I just waited until my dividends built up enough to buy a significant amount of a stock or mutual fund. I left that company in 1996. My wife worked until about 5 years ago and contributed every year at the co match max. Mine is worth double what hers is now.

"She asked me why is that? You haven't contributed since '96." I said "I told you so!"

I had to sleep in the guest room for a few nights but it was totally worth it.

Now she wants me to work on hers but we are both approaching 65 and I'm not sure how risky I want to go. I'll probably get a little risky with 30-50%.
 
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#724
#724
BigOrangeMojo said:
For 95% of Americans, it is a really bad idea to borrow from 401k unless it is an emergency.

Horribly tax inefficient, losing growth, and if you leave or lose your job, you have to repay it quickly....
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do you consider taking out a 401k loan for hookers and blow an "emergency"? asking for a friend
 
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