[quote=RB132]Here is the problems I can see with borroing from 401k.
1, You may to pay back if you leave the job or lost the job. If you don’t pay, the pnalty comes.
2, You pay the interest with your after tax money. When you take it out after retire, you pay tax again.[/quote]
The fact that you pay it back with after-tax money is a red-herring. As is the Suze Orman “that money is taxed twice” advice.
If you borrow from another source outside your 401K you are taxed on what you pay back to that loan, too.
Consider the loan from the perspective of your 401k and from the perspective of you as an individual.
First, the 401k – From the 401k’s point of view, the loan is simply a short/intermediate bond that pays back at a rate of 3% or whatever the loan rate is. If you are happy with what amounts to a fixed income CD-like investment that pays about 3% or so for a portion of your 401 it might make sense. For most people, if they had taken a loan a year ago and put it in the mattress and paid it back today, their 401k would be ahead.
Second, from your point of view – If borrowing from your 401k at 3% and paying down a debt that is much higher (e.g. a 7% second) it can make sense. Also, as suggested above there is sometimes a non-linear improvement in loan terms in cases where you can use the 401k loan to eliminate PMI. In that case the equivalent return can be in the double digits.
Still, should you leave or lose your job, the early withdrawal penalty would be the major concern. The other concern would be that you would miss out on investment opportunities in the market, should it rally during the term of the loan.
My plan has a loan processing fee of $70 and then a payment processing fee of $3/installment, you have to pay the loan back semi-monthly and the $3 fee is paid in advance. on $36K over 5 years the cost is about 1%.
My plan has a loan processing fee of $70 and then a payment processing fee of $3/installment, you have to pay the loan back semi-monthly and the $3 fee is paid in advance. on $36K over 5 years the cost is about 1%.
My plan has a loan processing fee of $70 and then a payment processing fee of $3/installment, you have to pay the loan back semi-monthly and the $3 fee is paid in advance. on $36K over 5 years the cost is about 1%.
My plan has a loan processing fee of $70 and then a payment processing fee of $3/installment, you have to pay the loan back semi-monthly and the $3 fee is paid in advance. on $36K over 5 years the cost is about 1%.
My plan has a loan processing fee of $70 and then a payment processing fee of $3/installment, you have to pay the loan back semi-monthly and the $3 fee is paid in advance. on $36K over 5 years the cost is about 1%.
