Loan from 401K to complete 20% down payment

[Paris167]

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.

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

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

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%.

Then I guess you think Suze Orman is stupid as well because she would agree with that writer. She's still wealthier than most people here so I guess you don't need to be smart to be rich - go figure

 

[daedalus]

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.

IRA, 401K, same thing  .  But there's no penalty with a 401k loan.

 

[The Motor Court Company]

Is JustSaying Paris' shill account? her US Marine husband? or a secret admirer?
He always defends Paris from people who don't agree with her.

Maybe we should start a discussion on TI couples, the what if thread. Qwerty and SoCal, JustSaying and Paris, ...etc

As much as I don't like Qwerty, I am siding with the big bat Mexican on this.

 

[irvinehomeowner]

Maybe we should start a discussion on TI couples, the what if thread. Qwerty and SoCal, JustSaying and Paris, ...etc

Farmie + IHO?

 

[qwerty]

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.
ROTH.

This i agree with. but this is not double taxation.

just so we are clear, the concept of double taxation with corporations is that you, as the shareholder, are the owner of the company. when the company pays taxes, you are in essence paying those taxes. then when the company pays out the dividend, you pay taxes again on your personal income tax return, thus double taxation.

a 401K, while legally your money, the IRS doesnt tax it because you have never taken possession of the money, so again, while the money is legally yours, the IRS doesnt necessarily view that way from a tax treatment perspective.  therefore, the IRS essentially views you as two entities.  so while you think you are paying yourself and paying taxes twice the IRS doesnt see it that way. the IRS sees one entity, the 401K, engaging in an arms length transaction with the borrower, you.  as with any arms length transaction, you will pay a fair market rate to the person who loans you the money, in the case, its the 401K.

Paris - let me ask you this, if you borrowed money from say a friend or parent because of hardship and you paid them the principal/interest, would you consider this double taxation? im guessing you wouldnt. that is how the IRS views it, two parties in an arms length transaction.

 

[qwerty]

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.

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

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

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%.

Then I guess you think Suze Orman is stupid as well because she would agree with that writer. She's still wealthier than most people here so I guess you don't need to be smart to be rich - go figure

just because Suze Orman is on TV doesnt make her right.  plenty of people on TV give incorrect information on TV. and i didnt say you were stupid, just 95% of the population

just because someone is on TV i dont take their word for things. i make sure i understand and agree with any concepts they are trying to explain.

 

[qwerty]

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.

this is not double taxation - if you paid a bank 4% is that double taxation? when you pay a bank the 4% interest rate, you are paying them the money they could have earned from an alternative investment of similar risk.  why is it double taxation because you pay to a 401K instead.  the 401K administrator, has a fiduciary duty on behalf of the plan to maximize the returns of the assets.  so it would not be in the best interest of the plan to loan you money without a commensurate interest rate because it is lending you the money vs potentially earning a return in the market.

 

[eyephone]

Who in the world is Suzie O? (Why do people bring tv personalities to conversations?) Bottom line: Paris you are wrong on this topic

 

[eyephone]

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.

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

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

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%.

Then I guess you think Suze Orman is stupid as well because she would agree with that writer. She's still wealthier than most people here so I guess you don't need to be smart to be rich - go figure

Is your first name Suze? Lol

 

[qwerty]

Then I guess you think Suze Orman is stupid as well because she would agree with that writer. She's still wealthier than most people here so I guess you don't need to be smart to be rich - go figure

i did a quick search on suze orman and 401K double taxation, the internet is littered with people that say she is wrong about the double taxation.  i guess suze orman is stupid.

 

[qwerty]

the federal reserve has said there is no double taxation on 401k loans.  damn, suze orman was wrong, she must have lucked into her riches

 

[socal123]

I took a 401k loan in 2010 for a home purchase. Turned out to be a good decision. Bought a short sell and now it's worth 300K more than I bought it.  In my mind the only downside of a 401k loan is missing out on gains in the market. If the market goes down which it may very well do, then you'd actually turn out ahead.  For someone with over a million in their 401k taking a 50K 401k loan for a home purchase is no big deal.

 

[irvinehomeowner]

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.

this is not double taxation - if you paid a bank 4% is that double taxation? when you pay a bank the 4% interest rate, you are paying them the money they could have earned from an alternative investment of similar risk.  why is it double taxation because you pay to a 401K instead.  the 401K administrator, has a fiduciary duty on behalf of the plan to maximize the returns of the assets.  so it would not be in the best interest of the plan to loan you money without a commensurate interest rate because it is lending you the money vs potentially earning a return in the market.

I know what you are saying.

What I'm saying is that if you want to be technical, since the interest you pay is "after tax dollars" vs "pretax" dollars for a regular contribution, your net contribution is less because you don't receive the initial tax deferment.

For example, you contribute $10k to your 401k, that's all pretax and lowers your tax basis.

But, if you pay interest to your 401k loan, that's after tax dollars, so that's equivalent to $7k (assuming 30% bracket). So your "contributions" are lower.

It's not specifically double taxation... but it's a lower value of your dollar because you are using after tax dollars.

This has nothing to do with the difference between getting a loan from a bank and from your 401k, it has to do with the difference between the value of your money of a normal contribution vs. an interest contribution.

And like the article says, for a short term loan, it's negligible, but over a 30-year span for home basis 401k loans (30 year amortization), the effect could be greater. But then, you have to consider home appreciation vs. 401k appreciation and that most likely will balance out.

It's not really "double taxation" but it's after tax contributions vs. pre-tax contributions thus taking away some of the tax benefits of using a 401k. Regardless, paying myself 3.5% vs. paying a bank 3.5% as long as I don't have any emergency money needs without all the hassle is convenient.

 

[qwerty]

IHO is part of the 5%.

 

[ps99472]

Are there free refi's with this loan

 

[JustSayin]

Is JustSaying Paris' shill account? her US Marine husband? or a secret admirer?
He always defends Paris from people who don't agree with her.

Yes, yes, I'm all of that.  :

Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.

Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.

 

 

[The Motor Court Company]

OK admit it. Is she hot in person? or you just love gun wielding woman who drives fast cars?

Is JustSaying Paris' shill account? her US Marine husband? or a secret admirer?
He always defends Paris from people who don't agree with her.

Yes, yes, I'm all of that.  :

Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.

Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.

 

[JustSayin]

OK admit it. Is she hot in person? or you just love gun wielding woman who drives fast cars?

Is JustSaying Paris' shill account? her US Marine husband? or a secret admirer?
He always defends Paris from people who don't agree with her.

Yes, yes, I'm all of that.  :

Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.

Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.

I will not dignify your sexist comment-- (I'll let her pic do the talking.)

 

[Paris167]

OK admit it. Is she hot in person? or you just love gun wielding woman who drives fast cars?

Is JustSaying Paris' shill account? her US Marine husband? or a secret admirer?
He always defends Paris from people who don't agree with her.

Yes, yes, I'm all of that.  :

Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.

Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.

I will not dignify your sexist comment-- (I'll let her pic do the talking.)

Don't waste your time acknowledging his ignorant, idiotic comments. Simply put you know what they say - you can't change stupid.  ;D

 

[freedomcm]

Mahalo!  spam much?