Loan from 401K to complete 20% down payment

I thought that with a loan (not a withdrawal) you don't have to pay taxes.  Can get a loan for 50% of the 401K amount or upto $50,000.  You then pay back into your own 401K with interest.
 
Paris said:
I wouldn't take a loan from your 401k because with the penalties you pay to do it and the double taxation you set yourself up for, it's not worth it. You pay taxes to take out a loan and then at retirement when you take it out you pay taxes again. Do you really want to pay the govn't twice? I shudder at the thought.
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what do you mean double taxation? when you borrow from your 401K there is no income to be taxed, its a loan.
 
qwerty said:
Paris said:
I wouldn't take a loan from your 401k because with the penalties you pay to do it and the double taxation you set yourself up for, it's not worth it. You pay taxes to take out a loan and then at retirement when you take it out you pay taxes again. Do you really want to pay the govn't twice? I shudder at the thought.
Click to expand...

what do you mean double taxation? when you borrow from your 401K there is no income to be taxed, its a loan.
Click to expand...

Sorry let me clarify
A 401(k) loan is paid with after-tax dollars, unlike the pretax contributions that go into your 401(k). When you take that money out in retirement, it will be taxed?again. So a loan results in double taxation for you as the borrower.

And this is a good article on borrowing from your 401k loanhttp://www.myretirementpaycheck.org...-need-to-know-before-borrowing-from-your.aspx
 
Paris said:
I wouldn't take a loan from your 401k because with the penalties you pay to do it and the double taxation you set yourself up for, it's not worth it. You pay taxes to take out a loan and then at retirement when you take it out you pay taxes again. Do you really want to pay the govn't twice? I shudder at the thought.

Can you just wait it out a little and save a bit more? Or sell something else or even get a 2nd personal loan if you can pay it off quicker?

And don't stop your 401k contributions!
1. If your employer matches a % of your contribution you're just passing up free $$$

2. The power of compounding interest in your retirement accounts is amazing. If you sat down with a advisor and just looked at how much you would short your retirement account by just stopping contributions for 1 year (in your early 30s when that $$ still have 35yrs to compound on itself) you wouldn't do it.
Click to expand...

Paris - please stop giving your questionable advice. What are you taking about the taxation/double taxation? How is he paying taxes when he takes out the loan? (The only tax is if he doesn't pay it back)

I think you got it confused regarding double taxation, in regards to corporations. But yeah, it's funny reading your advice.
 
eyephone said:
Paris said:
I wouldn't take a loan from your 401k because with the penalties you pay to do it and the double taxation you set yourself up for, it's not worth it. You pay taxes to take out a loan and then at retirement when you take it out you pay taxes again. Do you really want to pay the govn't twice? I shudder at the thought.

Can you just wait it out a little and save a bit more? Or sell something else or even get a 2nd personal loan if you can pay it off quicker?

And don't stop your 401k contributions!
1. If your employer matches a % of your contribution you're just passing up free $$$

2. The power of compounding interest in your retirement accounts is amazing. If you sat down with a advisor and just looked at how much you would short your retirement account by just stopping contributions for 1 year (in your early 30s when that $$ still have 35yrs to compound on itself) you wouldn't do it.
Click to expand...

Paris - please stop giving your questionable advice. What are you taking about the taxation/double taxation? How is he paying taxes when he takes out the loan? (The only tax is if he doesn't pay it back)

I think you got it confused regarding double taxation, in regards to corporations. But yeah, it's funny reading your advice.
Click to expand...

Lets say you pay the interest of the loan (say $1000) with after tax dollars.  Lets say the 401 funds purchased with that interest  grows to $2,500 (gain of $1,500) by the time you retire.  Then you will be paying taxes on $2,500 (principal plus gain), when you take it out.  If you had just invested that $1,000 after taxes then you will pay taxes only on the gain ($1,500).  That's how I read it.
 
Paris said:
qwerty said:
Paris said:
I wouldn't take a loan from your 401k because with the penalties you pay to do it and the double taxation you set yourself up for, it's not worth it. You pay taxes to take out a loan and then at retirement when you take it out you pay taxes again. Do you really want to pay the govn't twice? I shudder at the thought.
Click to expand...

what do you mean double taxation? when you borrow from your 401K there is no income to be taxed, its a loan.
Click to expand...

Sorry let me clarify
A 401(k) loan is paid with after-tax dollars, unlike the pretax contributions that go into your 401(k). When you take that money out in retirement, it will be taxed?again. So a loan results in double taxation for you as the borrower.

And this is a good article on borrowing from your 401k loanhttp://www.myretirementpaycheck.org...-need-to-know-before-borrowing-from-your.aspx
Click to expand...

eyephone is correct. there is no double taxation. and that link you cite that says the 401K loan is double taxation is incorrect.  like i said before, 95% of the people in the world are stupid, and the writer of that article that thinks a 401K loan is double taxation is one of the 95%.
 
qwerty said:
Paris said:
qwerty said:
Paris said:
I wouldn't take a loan from your 401k because with the penalties you pay to do it and the double taxation you set yourself up for, it's not worth it. You pay taxes to take out a loan and then at retirement when you take it out you pay taxes again. Do you really want to pay the govn't twice? I shudder at the thought.
Click to expand...

what do you mean double taxation? when you borrow from your 401K there is no income to be taxed, its a loan.
Click to expand...

Sorry let me clarify
A 401(k) loan is paid with after-tax dollars, unlike the pretax contributions that go into your 401(k). When you take that money out in retirement, it will be taxed?again. So a loan results in double taxation for you as the borrower.

And this is a good article on borrowing from your 401k loanhttp://www.myretirementpaycheck.org...-need-to-know-before-borrowing-from-your.aspx
Click to expand...

eyephone is correct. there is no double taxation. and that link you cite that says the 401K loan is double taxation is incorrect.  like i said before, 95% of the people in the world are stupid, and the writer of that article that thinks a 401K loan is double taxation is one of the 95%.
Click to expand...

Hi Qwerty

Can't someone make an argument that the interest you pay (post-tax) on the loan back into the 401K account will be subject to tax when you take it out of 401K after retiring, and hence the double taxation, see my earlier post

Deperately want to be in the 5% category :)
 
Here is another article regarding 401k loans (and why they are better for short term loans):
http://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp

About double taxation... that's not actually true because the money you're repaying is not "new" contributions, only the interest is. So while there may be some cost because you are repaying with after-tax dollars, that impact is minimal on short-term loans.

Tax Inefficiency - The media claim 401(k) loans are tax inefficient because they must be repaid with after-tax dollars, subjecting loan repayment to double taxation. Actually, only the interest portion of the repayment is subject to such treatment. (You can read a balanced account of why this occurs in the article Should You Take A Loan From Your Plan?)

The media usually fail to note that the cost of double-taxation on loan interest is often fairly small compared to the cost of alternative ways to tap short-term liquidity.
Click to expand...
 
irvinehomeowner said:
Here is another article regarding 401k loans (and why they are better for short term loans):
http://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp

About double taxation... that's not actually true because the money you repaying is not "new" contributions, only the interest is. So while there may be some cost because you are repaying with after-tax dollars, that impact is minimal on short-term loans.

Tax Inefficiency - The media claim 401(k) loans are tax inefficient because they must be repaid with after-tax dollars, subjecting loan repayment to double taxation. Actually, only the interest portion of the repayment is subject to such treatment. (You can read a balanced account of why this occurs in the article Should You Take A Loan From Your Plan?)

The media usually fail to note that the cost of double-taxation on loan interest is often fairly small compared to the cost of alternative ways to tap short-term liquidity.
Click to expand...
Click to expand...

Thanks Irvinehomeowner for confirming I am a 5% er.
 
Careful with Paris. She might have husband hunt you down.

Careful with Irvine Dream. He might piece together bits of info from forum and reassemble for all to read and remove concept of anonymity.

Two real headcases.
 
Irvine Dream said:
qwerty said:
Paris said:
qwerty said:
Paris said:
I wouldn't take a loan from your 401k because with the penalties you pay to do it and the double taxation you set yourself up for, it's not worth it. You pay taxes to take out a loan and then at retirement when you take it out you pay taxes again. Do you really want to pay the govn't twice? I shudder at the thought.
Click to expand...

what do you mean double taxation? when you borrow from your 401K there is no income to be taxed, its a loan.
Click to expand...

Sorry let me clarify
A 401(k) loan is paid with after-tax dollars, unlike the pretax contributions that go into your 401(k). When you take that money out in retirement, it will be taxed?again. So a loan results in double taxation for you as the borrower.

And this is a good article on borrowing from your 401k loanhttp://www.myretirementpaycheck.org...-need-to-know-before-borrowing-from-your.aspx
Click to expand...

eyephone is correct. there is no double taxation. and that link you cite that says the 401K loan is double taxation is incorrect.  like i said before, 95% of the people in the world are stupid, and the writer of that article that thinks a 401K loan is double taxation is one of the 95%.
Click to expand...

Hi Qwerty

Can't someone make an argument that the interest you pay (post-tax) on the loan back into the 401K account will be subject to tax when you take it out of 401K after retiring, and hence the double taxation, see my earlier post

Deperately want to be in the 5% category :)
Click to expand...

a loan, regardless of who you are paying back, is always going to be done with after tax money. you can argue whatever you want. the interest charged on the loan is to make up for the potential gains you are giving up by not having your money in the stock market.  the stock market gains will eventually get taxed when you withdraw it, which is the same as the interest you paid yourself getting taxed when it is eventually withdrawn.

THERE IS NO DOUBLE TAXATION ON PAYING BACK A 401K LOAN
 
Rice Vino said:
Careful with Paris. She might have husband hunt you down.

Careful with Irvine Dream. He might piece together bits of info from forum and reassemble for all to read and remove concept of anonymity.

Two real headcases.
Click to expand...

Who's the headcase?  You're the one dredging up old material to bash other posters. 

#LetItGo!

Faster than Qwerty's moving text

 
Irvine-ite said:
So what's the verdict?  Do we listen to the bad female driver with a gun or the big Mexican with a bat?  Tough call.
Click to expand...

I thought the big Mexican was the Bat.
Or that the average sized Mexican has a big bat.
I'm so confused--
 
Rice Vino said:
Careful with Paris. She might have husband hunt you down.

Careful with Irvine Dream. He might piece together bits of info from forum and reassemble for all to read and remove concept of anonymity.

Two real headcases.
Click to expand...

Apparently Irvine Dream broke a code. Test is a girl. (#whoknows) Irvine Dream the "Ti" Detective  ;)
 
eyephone said:
Paris said:
I wouldn't take a loan from your 401k because with the penalties you pay to do it and the double taxation you set yourself up for, it's not worth it. You pay taxes to take out a loan and then at retirement when you take it out you pay taxes again. Do you really want to pay the govn't twice? I shudder at the thought.

Can you just wait it out a little and save a bit more? Or sell something else or even get a 2nd personal loan if you can pay it off quicker?

And don't stop your 401k contributions!
1. If your employer matches a % of your contribution you're just passing up free $$$

2. The power of compounding interest in your retirement accounts is amazing. If you sat down with a advisor and just looked at how much you would short your retirement account by just stopping contributions for 1 year (in your early 30s when that $$ still have 35yrs to compound on itself) you wouldn't do it.
Click to expand...

Paris - please stop giving your questionable advice. What are you taking about the taxation/double taxation? How is he paying taxes when he takes out the loan? (The only tax is if he doesn't pay it back)

I think you got it confused regarding double taxation, in regards to corporations. But yeah, it's funny reading your advice.
Click to expand...

Everyone on here is entitled to their own opinions, if you don't like my advice don't read it and move on. Some might argue your advice is questionable.

And fine if most don't think it's double taxation. In my mind borrowing pretax dollars that are gaining compound interest, paying a penalty on it, then paying it back with after tax dollars and while doing so stopping my contributions to the 401k during that time - TO ME and Most common sensed people that is a BAD idea. Again MY opinion. You can borrow the crap against your retirement for all I care if you think it's a good idea. Doesn't matter to me.

And we are presuming we are talking about a traditional 401k not a ROTH. It's a different case if it's a ROTH.
 
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