Borrowing Against a 401k

[vizcaya]

I am thinking of taking a loan against my 401K.I have been throwing around some ideas. And I am having a tough time convincing myself that this is a bad idea.

I can withdraw a loan about 36k from my account. The current interest rate is at 2.75%. I believe it is fixed at that rate for the 5 year loan.

I do not need the money, but the 401k money is sitting in a goverment securities fund getting about 2% a year interest. I am not looking to move my 401k balance back into the equites until after the recession is over, and I am guessing that this will be another 3 years, with slow growth.

I can get a 4% CD for a year at Navy Federal, and I was thinking of parking the money into CD’s, or high interest rate savings accounts.

My thinking is that this economy is going nowhere anytime soon. Since I believe it will be about 5-7 years until another bubble is created, or another bull market. Then what is the point of having 1/2 of the balance in my 401 K just being sit idle for 5 years. Especially if I can get access to half, for a low rate, which is lower than what I am getting with a CD at my bank.

I also think interest rates will rise within the next 2 years, and therefore the CD rates will be higher and the loan would basically be a interest free loan, or possibly make money from it.

Also by having the Cash balance now, I am able to jump on a investment oppurtunity without having to look for financing.

The downside is of course that the market comes roaring back, and I missed the opportunity to get the gains.
I was lucky enough to ride this latest bubble market up, and moved all of the balance to the goverment securities Nov 2007. Therefore I did not lose 50%. So I guess I am looking at the 50% of my 401K as bubble money, and therefore I am looking to take a risk on my assumptions of what the future may hold.

[UCGal]

If you park the 401k loan money in CD’s what money will you use to “pay back” the 401k? Most 401k loans require a monthly payment (with interest to yourself). Do you have the cash flow to cover the servicing of the 401k loan?

[UCGal]

If you park the 401k loan money in CD’s what money will you use to “pay back” the 401k? Most 401k loans require a monthly payment (with interest to yourself). Do you have the cash flow to cover the servicing of the 401k loan?

[UCGal]

If you park the 401k loan money in CD’s what money will you use to “pay back” the 401k? Most 401k loans require a monthly payment (with interest to yourself). Do you have the cash flow to cover the servicing of the 401k loan?

[UCGal]

If you park the 401k loan money in CD’s what money will you use to “pay back” the 401k? Most 401k loans require a monthly payment (with interest to yourself). Do you have the cash flow to cover the servicing of the 401k loan?

[UCGal]

If you park the 401k loan money in CD’s what money will you use to “pay back” the 401k? Most 401k loans require a monthly payment (with interest to yourself). Do you have the cash flow to cover the servicing of the 401k loan?

[vizcaya]

Yeah, I can make the $643 payment over the 5 years for the 36k loan.

My numbers are as follows:

36k at a average CD rate of 3.5%(Average) over 5 years yeilds:

44,398

The 36k loan will incur about:
$2,640.00 in finance charges that are paid back to me. Total payback amount is $38,640.00

I am sure I could find higher interest rate, but I am only looking to lock the money up for 6-12 months at a time, then determine were to invest.

[vizcaya]

Yeah, I can make the $643 payment over the 5 years for the 36k loan.

My numbers are as follows:

36k at a average CD rate of 3.5%(Average) over 5 years yeilds:

44,398

The 36k loan will incur about:
$2,640.00 in finance charges that are paid back to me. Total payback amount is $38,640.00

I am sure I could find higher interest rate, but I am only looking to lock the money up for 6-12 months at a time, then determine were to invest.

[vizcaya]

Yeah, I can make the $643 payment over the 5 years for the 36k loan.

My numbers are as follows:

36k at a average CD rate of 3.5%(Average) over 5 years yeilds:

44,398

The 36k loan will incur about:
$2,640.00 in finance charges that are paid back to me. Total payback amount is $38,640.00

I am sure I could find higher interest rate, but I am only looking to lock the money up for 6-12 months at a time, then determine were to invest.

[vizcaya]

Yeah, I can make the $643 payment over the 5 years for the 36k loan.

My numbers are as follows:

36k at a average CD rate of 3.5%(Average) over 5 years yeilds:

44,398

The 36k loan will incur about:
$2,640.00 in finance charges that are paid back to me. Total payback amount is $38,640.00

I am sure I could find higher interest rate, but I am only looking to lock the money up for 6-12 months at a time, then determine were to invest.

[vizcaya]

Yeah, I can make the $643 payment over the 5 years for the 36k loan.

My numbers are as follows:

36k at a average CD rate of 3.5%(Average) over 5 years yeilds:

44,398

The 36k loan will incur about:
$2,640.00 in finance charges that are paid back to me. Total payback amount is $38,640.00

I am sure I could find higher interest rate, but I am only looking to lock the money up for 6-12 months at a time, then determine were to invest.

[Anonymous]

Early withdrawal penalty for your 401K?

[Anonymous]

Early withdrawal penalty for your 401K?

[Anonymous]

Early withdrawal penalty for your 401K?

[Anonymous]

Early withdrawal penalty for your 401K?

[Author]

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