lets talk Retirement accounts & loans..

[MaximusD]

Originally Posted By: OtisBlkR1
a good year is 6-8% a bad year (like 2008) and we all loose thousands....

This is an incorrect way to look at it. You're not losing "thousands" unless you take the money out of the market. Shares lose money, but you don't lose shares, in fact, if you kept your investment allocation the same, you're gaining MORE shares the more the market is going down. I have over 30 years until retirement, and I'm hoping for more market volatility, just to up my stake in mutual funds in my Roth and 401k.

 

[NMBurb02]

Originally Posted By: OtisBlkR1
I will continue to put 9% of my check in this fund.. i will not slow or stop my contributions.. and with the last loan paid off a year early i plan to up the percent to 15% when the loan is completed (for atleast 12 months).

Herein lies one big problem with your plan. Most 401(k) plans do not allow you to contribute until all outstanding loans are repaid. So, in effect, that 9% will go toward repaying the loan. My suggestion is to stop your retirement contributions in the short term and apply that amount to your existing loans and pay them off as soon as possible (flame-resistant suit on!). Taking that 9% of your $100k+ income and throwing it at the loans will allow you to knock them out in a little more than one year (when combined with the $375/month you are already paying on them). That will give you roughly the same time frame of repayment as taking the 401(k) loan, plus about $600-700 in interest, but without the associated risks, such as having to repay within 1 year if you lose your job or move onto another job.

Originally Posted By: OtisBlkR1
my financial advisor at work said it simple.. your guaranteed to save 9% that your paying the local bank in interest, your not guaranteed 9% in the market..

Not to offend your financial advisor (okay, maybe just a little), but he/she is "simple" and you need to find an independent advisor who is looking out for your interest. You are "guaranteed" to "save" 9% in interest, unless you cannot repay the loan due to unforseen medical expenses, other emergencies, etc., at which point you are taxed at your normal income tax rate plus a 10% penalty on the outstanding balance. You always have to take risk into consideration when talking about saving, investing, borrowing, etc., which is also why this is a bad idea:
Originally Posted By: Doog
Borrow as much as you can afford on a fixed 30 year loan and invest it in real property then rent the property to pay off the loan. Preferably a retirement home you can easily rent now and use later. I say this for 3 reasons.

1. Interest rates are the lowest they have been since the 1950's and won't get much lower.
2. The Treasury is buying up so much US debt that your money will be worth much less than it is now. So your purchasing power will never be this high again. You borrow now and pay back in inflated dollars in the future.
3. If you buy in a vacation/retirement area as the baby boom retires rental will be in demand and easy to cover your payments. You will have someone else pay off your retirement home for you.

That is not investing, that is pure speculation. Have we already forgotten the lessons learned from the housing meltdown?

BTW, I have drunk the Dave Ramsey koolaid (cherry flavored) and am living DEBT FREEEEEE!!!!!

 

[Cujet]

No no no.

 

[Vikas]

(Using my GHT principle)

It is a great idea! Go for it!!

 

[Drew99GT]

Here's a better idea: Do you have a credit card? I know, I know, but here me out: you can usually strike a deal with your credit card company to roll over loans onto your card for terms as good as 0% for a year or 2. If you want to get out of those 2 loans, you could roll them over and look for ways to save every penny to pay them off ASAP.

Like JH mentioned, if you leave your job with a 401K loan and you roll it over, the loan balance is considered to be distributed and you pay taxes plus the 10% penalty. I see it all the time; it eats people alive and destroys their retirement if they mess with their 401K.

 

[Drew99GT]

Originally Posted By: OtisBlkR1

Herein lies one big problem with your plan. Most 401(k) plans do not allow you to contribute until all outstanding loans are repaid. So, in effect, that 9% will go toward repaying the loan. My suggestion is to stop your retirement contributions in the short term and apply that amount to your existing loans and pay them off as soon as possible (flame-resistant suit on!). Taking that 9% of your $100k+ income and throwing it at the loans will allow you to knock them out in a little more than one year (when combined with the $375/month you are already paying on them). That will give you roughly the same time frame of repayment as taking the 401(k) loan, plus about $600-700 in interest, but without the associated risks, such as having to repay within 1 year if you lose your job or move onto another job.



I agree entirely, and see if you can roll the balances over onto a credit card for 0% for a year.

Everyone hates credit cards, but the undisciplined masses make it great for people who are disciplined enough to take advantage of terms like that.

 

[Rock_Hudstone]

Originally Posted By: Drew99GT
Here's a better idea: Do you have a credit card? I know, I know, but here me out: you can usually strike a deal with your credit card company to roll over loans onto your card for terms as good as 0% for a year or 2. .

Why didn't I think of that?

 

[Turk]

Originally Posted By: Rock_Hudstone
Originally Posted By: Drew99GT
Here's a better idea: Do you have a credit card? I know, I know, but here me out: you can usually strike a deal with your credit card company to roll over loans onto your card for terms as good as 0% for a year or 2. .

Why didn't I think of that?

Me too. That's why we're here - to bounce ideas & methods off each other.

 

[JHZR2]

Originally Posted By: Rock_Hudstone
Originally Posted By: Drew99GT
Here's a better idea: Do you have a credit card? I know, I know, but here me out: you can usually strike a deal with your credit card company to roll over loans onto your card for terms as good as 0% for a year or 2. .

Why didn't I think of that?

That's only as good as the discipline to pay it off. If the OP is living within means and doesn't have the cash, then 0% isn't going to get it to $0 before it reverts to a big interest rate and the bill balloons.

 

[Drew99GT]

Originally Posted By: JHZR2
Originally Posted By: Rock_Hudstone
Originally Posted By: Drew99GT
Here's a better idea: Do you have a credit card? I know, I know, but here me out: you can usually strike a deal with your credit card company to roll over loans onto your card for terms as good as 0% for a year or 2. .

Why didn't I think of that?

That's only as good as the discipline to pay it off. If the OP is living within means and doesn't have the cash, then 0% isn't going to get it to $0 before it reverts to a big interest rate and the bill balloons.


It's not a new loan on a new purchase.

 

[opus1]

IMHO, retirement money doesn't exist for any loan-making.

Personal experience, a friend took a large loan from her 401(k) to build her dream house. A year later we were outsourced, and while technically would still be employed and working at the same location, we no longer worked for the same company, and she was informed that she had something like 60 days to come up with the outstanding loan balance or the company would report it to the IRS as an early distribution and she was still young enough that this would be considered an early distribution and be taxed/penalized accordingly.

 

[JHZR2]

Originally Posted By: Drew99GT
Originally Posted By: JHZR2
Originally Posted By: Rock_Hudstone
Originally Posted By: Drew99GT
Here's a better idea: Do you have a credit card? I know, I know, but here me out: you can usually strike a deal with your credit card company to roll over loans onto your card for terms as good as 0% for a year or 2. .

Why didn't I think of that?

That's only as good as the discipline to pay it off. If the OP is living within means and doesn't have the cash, then 0% isn't going to get it to $0 before it reverts to a big interest rate and the bill balloons.


It's not a new loan on a new purchase.


It does not matter. Do you really think that the CC companies are going to lend at 0% indefinitely? Any deal like this that Ive ever seen has terms of n months before it reverts back to the standard purchase rate.

You realize that the 0% stuff is a teaser, because they know that more often than not, the full debt does not get paid and then the remainder can be charged interest at the purchase rate... Its a good deal for them.

Plus balance transfer or initiation fees which many have, which can be 3-5%. Ive seen some with 0% transfer fee, but they usually have shorter 0% terms...

 

[PandaBear]

Originally Posted By: OtisBlkR1
I should add: Im not hurting for $ (im not rich) but not hurting either.. Im simply looking at the numbers and looking for the best ways to maximize what ive already got without paying more interest to the bank.. over coffee a coworker started talking about this plan and got me interested..

$50 bucks to borrow against yourself and pay yourself back with interest ? yes, i risk future earnings over the next three years untill 100% is fully paid back.. but with the bigger loan out of the way i can invest a full 15% on that imaginary 4th year.. (paying myself back even more on the back side)..
as i mentioned before im no expert on this stuff.. thats why i bring it to some of you.


In general, it is ok to take out a loan for an asset that will pay you back in the long run (i.e. mortgage, an education that will make you higher income, children's education) or if it can cover another loan that is higher interest rate. Now if you are trying to take out $ for investment, you have to always remember that risk and reward is proportional and there is no magical 15% reward that is lower or no risk compare to those in IRA (safer as there are more rules and regulation on what they can invest in or not).

I know a lot of people who borrow against their home and go into "investment" they know nothing about and lost a lot of money, and set them back a decade of retirement savings. How much can you afford to lose and how well do you know the investment?

 

[Dave Hess]

opus1, I agree 100% with your statement about borrowing from 401(k).

The original poster has only $14,000 in debt which can easily paid off in one year if they use their tax return and focus every month on chipping away at that balance. I would try the 0% credit card avenue but ultimately pay it down within a year.

 

[Rock_Hudstone]

Originally Posted By: JHZR2
It does not matter. Do you really think that the CC companies are going to lend at 0% indefinitely? Any deal like this that Ive ever seen has terms of n months before it reverts back to the standard purchase rate.

You realize that the 0% stuff is a teaser, because they know that more often than not, the full debt does not get paid and then the remainder can be charged interest at the purchase rate... Its a good deal for them.

Plus balance transfer or initiation fees which many have, which can be 3-5%. Ive seen some with 0% transfer fee, but they usually have shorter 0% terms...

Actually, credit card balance transfers are not a bad deal if used correctly.

The better your credit score more attractive the offer. With a good score 0% deals are usually around 18 months and a 3% transfer fee, some offer 24 months at 1.99%. That is plenty of time to roll the now smaller balance onto another card if need be. (Note: one needs two cards from separate major banks to play this game).

As for interest rates, the Federal Reserve must keep them low as long as possible, otherwise interest payments on the national debt blow sky high.

 

[Vikas]

Anybody who adds up interest rates on two loans should be the last person to try to game the financial system. The odds are extremely against him.

 

[OtisBlkR1]

well,i came to a decision on this, im not going to borow against the Thrift account (its not exactly a 401k fyi) and i can take a loan on it and continue to put in up to 15% contributions.

anyways.. with that said, im not going to do it. I was on the verge but with enough advice ive decided its not worth it. And yes i have credit cards (i carry zero balance) and yes i have fantastic credit. No we are not in financial hardships, one last time i will say that i was simply playing with numbers trying to maximize.

I will however pay a thank you forward, the tax return idea to knowck out one loan and then doubling down on the other is a good plan. im most likely going to go this route.

i apprecaite everyones input. The C.C. idea is not a bad one, but im not planning to open up any more lines of credit. Soon enuff i will pay both of these debts off and be back to only a single house payment.

Oh, to all those yelling buy now for a retirement home.. Im in it now. at 34 i bought my home on a lake, and then refied it last year down to a 15 year loan. My home will easly be paid off well before i retire. and with a little more planning i may be able to pay it off sooner than that..

My wife and i both listened to dave ramsey, hes full of good stuff, i do however think that some expectations are a little unrealistic. Beans & Rice ?? tell that to my 28 year old pregnant wife... if you want to live in misery for 8-10 years to afford to be debt free, well ok. I prefer to enjoy life now.. tomorrow is not promised. you can enjoy life and still plan for the future within reason.

again, thanks for all the replys !!

 

[Cup of Joe]

Originally Posted By: OtisBlkR1

I will however pay a thank you forward, the tax return idea to knock out one loan and then doubling down on the other is a good plan. im most likely going to go this route.



That sounds like an excellent plan. I would suggest after both loans are paid you apply the $375 to TSP contributions or a Roth IRA. Your standard of living will remain the same but your contributions will increase.

 

[Drew99GT]

Originally Posted By: Rock_Hudstone
Originally Posted By: JHZR2
It does not matter. Do you really think that the CC companies are going to lend at 0% indefinitely? Any deal like this that Ive ever seen has terms of n months before it reverts back to the standard purchase rate.

You realize that the 0% stuff is a teaser, because they know that more often than not, the full debt does not get paid and then the remainder can be charged interest at the purchase rate... Its a good deal for them.

Plus balance transfer or initiation fees which many have, which can be 3-5%. Ive seen some with 0% transfer fee, but they usually have shorter 0% terms...

Actually, credit card balance transfers are not a bad deal if used correctly.

The better your credit score more attractive the offer. With a good score 0% deals are usually around 18 months and a 3% transfer fee, some offer 24 months at 1.99%. That is plenty of time to roll the now smaller balance onto another card if need be. (Note: one needs two cards from separate major banks to play this game).



Which is exactly why I laid out the usual terms and said it takes discipline in the first place. Why JH has to repeat what I already said to make me look like an A$$ is beyond me.

It's an open offer from my Capital One account to get 5 purchases/balance transfers for a 2% transaction fee and 0% APR for 24 months, up to my credit limit. In the OP's situation, that's would be a no brainer. But, it takes discipline to not go past 24 months or the rate on those transactions goes to the standard APR. DUH.

 

[Turk]

Originally Posted By: OtisBlkR1

Oh, to all those yelling buy now for a retirement home.. Im in it now. at 34 i bought my home on a lake, and then refied it last year down to a 15 year loan. My home will easly be paid off well before i retire. and with a little more planning i may be able to pay it off sooner than that..

My wife and i both listened to dave ramsey, hes full of good stuff, i do however think that some expectations are a little unrealistic. Beans & Rice ?? tell that to my 28 year old pregnant wife... if you want to live in misery for 8-10 years to afford to be debt free, well ok. I prefer to enjoy life now.. tomorrow is not promised. you can enjoy life and still plan for the future within reason.