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My company is offering temp. access to 401k, should I do it?

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  • My company is offering temp. access to 401k, should I do it?

    My company is providing the opportunity to access up to 50% of our 401k.

    Interest on the "loan" would be 1% + prime. Prime had heen 3.25 last month.
    Interest on this loan is paid back to "my" 401k account.
    Up to 5 years to pay back.
    No hardship requirements.
    $50 processing fee.

    Allthough this "usually" is NOT a good thing to do. "I hear you screaming Clark Howard," but with the interest so low and none of the usual penalties, I don't really see the bad side of this, other than that, my full vested ammount would no longer be making the same interest as it would have been.

    Your thoughts???

    Thanks,

    Derek

  • #2
    If you are in a cash crunch or have interest bearing debt you couldn't pay down otherwise (or at such an attractive interest rate) I would consider it, otherwise I'd leave it alone so your vested principle can earn back some of the losses it no doubt incurred in recent months...
    "Let the floating wall float" - m-fine

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    • #3
      Yeah, the more I am reading, the more I don't like this option. Mainly if you lose your job during the payback period part." I am not so secure in my job right now, so I think, due to that, this option is NOT a good idea. I just survived the 3rd. round of layoffs, but will I survive the 4th?

      Sucks.

      Thanks for the suggestions/opionions.

      Derek

      Comment


      • #4
        That's another factor I hadn't thought of, I'd want to leave that alone in the event you need the cashflow (let's hope that will not be the case)

        It does suck, hang in there!

        Art
        "Let the floating wall float" - m-fine

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        • #5
          I borrowed around $12K for a car loan against my 401K account about 15 yrs back. If I remember correctly it was a good option for the following reasons:

          The interest rate was much lower, about 4 points lower, than loans of the same type at that time.

          I was paying myself back the interest instead of giving it to a bank. I saw this as like I was getting a free loan. The interest went back into my 401K so it was a partial offset of the money I could have been gaining with the money being in there.

          I was only taking out a small portion of the account so my account still reaped the benefits of market gains.

          Cons: You now have an extra payment that you have to make monthly. An alternative could be to lower your normal 401K contributions for the time while youare paying the loan back to ease that burden.
          ------------------------------------

          http://www.chasehometheater.com/foru...php?albumid=14

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          • #6
            Don't do it ! when the market turns around you will have lost any oppurtunity to take advantage of the shres you sold.

            If anything you need to be investing more.

            Not taking it out.
            A knock at the door said "Alcohol Tobacco and Firearms" I thought it was a delivery.:biglaugh:

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            • #7
              Originally posted by Tortured Monkey
              Don't do it ! when the market turns around ......
              So he'll have about 10 years before he looses his opportunity to get on the upswing.

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              • #8
                Originally posted by TooManyToys
                So he'll have about 10 years before he looses his opportunity to get on the upswing.
                I really don't think that is accurate.

                But if he takes the money out he will lose the oppurtunity for some pretty good gains.

                borrowing from a 401 is the last thing one should do.

                Interest rates are at an all time low boorow from a bank and let your money in the 401 alone.
                A knock at the door said "Alcohol Tobacco and Firearms" I thought it was a delivery.:biglaugh:

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                • #9
                  It depends on how much of his account he is going to pull out. He didn't say what percentage he was planning to take out but only that there was a 50% max amount. He also didn't say what was his planned timeframe to payback the money. This market isn't going to turn around overnight and it will likely keep going south before it rebounds. Pulling out 10 or 20% May be better than his other options.

                  General rule of thumb is to leave it alone but in certain situations it is a good option. Weight out your options with all the figures in front of you and you will know what to do.
                  ------------------------------------

                  http://www.chasehometheater.com/foru...php?albumid=14

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                  • #10
                    Yeah, it all just scares me. It does seem like a good option and may well be for some, but the whole job thing still is the killer for me. I'd hate to get taxed on it if I lose my job AND have to pay it back within 30 days.

                    Shall I raffle a set of speakers instead? ;) Only half/kidding.

                    Thanks again for all of your thoughts.

                    Derek

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                    • #11
                      Don't forget that you'll be paying back the loan with post tax dollars and then you'll be taxed on that money again when you retire and take the money out of the 401k. So you get taxed twice.

                      IMHO, 401k loans should only be used as a measure of last resort.

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                      • #12
                        Originally posted by dwayland
                        I'd hate to get taxed on it if I lose my job AND have to pay it back within 30 days.

                        Derek,

                        The above situation should not be an 'AND' scenario. You would only get taxed on it if you don't pay it back and why the 30 days? You should have the option to continue making payments even if you are not working at the same place. I'd check into that.

                        I know the job situation sucks out there. I'm working for a company that has filed chapter 11 so I know what is lurking around the corner.

                        Mike
                        ------------------------------------

                        http://www.chasehometheater.com/foru...php?albumid=14

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                        • #13
                          Originally posted by LoudandClear
                          Derek,

                          The above situation should not be an 'AND' scenario. You would only get taxed on it if you don't pay it back and why the 30 days? You should have the option to continue making payments even if you are not working at the same place. I'd check into that.

                          I know the job situation sucks out there. I'm working for a company that has filed chapter 11 so I know what is lurking around the corner.

                          Mike
                          Mike,

                          Wishing you the best in your situation my friend.

                          I "asumed" the 30 days. It's just somthing I read and may not be fact. I would "hope" that I would be able to continue to make payments. We have this option as of March 1st. and have been instructed to call T. Rowe Price starting then to get the full skinny. I will be calling.

                          "If" I were to persue this, I would be borrowing roughly 15%.

                          Thanks again,

                          Derek

                          Comment


                          • #14
                            Get all of the facts before doing anything..What penalties will be asessed,what pay back options you have,what taxes will you owe..Without knowing all of the details,it would be hard to make a determination of should/shouldn't take offer.

                            Mac
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                            • #15
                              Originally posted by dwayland
                              My company is providing the opportunity to access up to 50% of our 401k.

                              [...]

                              Your thoughts???
                              Derek, I admit to only knowing a smidgen of your situation with various threads I've read over the years.. So any input I can provide is limited only to the scope of my current understanding..

                              That said, my opinion is that if you are not undergoing the hardship requirements already to allow a loan against a 401k, then it would probably be best to not take any of it out.

                              And with that said, I think it is also heavily dependent upon your intended purpose for those funds. A new car? Don't do it. Go buy a really junky car for $1,000 to tide you over until you're on more stable financial ground to get a nicer one. Of course if the need is to pay medical debts then I'm sure you're already doing as much as you can to negotiate the best terms of your payments to both suit the basic needs of the debtor as well as still meet your own family's needs to provide basic living expenses.

                              As you've said, you have managed to still be employed, but there is no guarantee of that even hours from now (hypothetically speaking) or several years from now.

                              Hard times are had by us all, some times better and some worse than others. But again my opinion is that if you don't already meet the "hardship requirements" under the standard rules, then maybe it's a temptation that you should pass on..

                              Originally posted by Tortured Monkey
                              Don't do it ! when the market turns around you will have lost any oppurtunity to take advantage of the shres you sold.

                              If anything you need to be investing more.

                              Not taking it out.
                              I agree with T.M. here.. And this coming from myself who is only contributing 5% to my own 401(k) (utilizing company match). It sure ain't much, I know that... for sure. But our current financial situation with one income and three young'ins doesn't allow for much more at least for the next several years until we pay off our loan for our home addition we did two years ago. So I get not being ABLE to contribute more ... I do. And I can even support a decision to STOP contributing should you need that little bit for other purposes.. but to take OUT what you've already put in would need a real hardship case (IMO) ...

                              And I will close with the reiteration again that I don't really "know" your family situations, so my advice can only be had with a sizable block of salt alongside my limited understanding of your circumstances..

                              cheers!
                              ..dane
                              (The first to sport a signature on TCAforum..)
                              "Be kind, for everyone you meet is carrying a great burden." - Philo of Alexandria
                              "Love God and be nice to people." - Brooks Everett of CBC
                              d&k's webpage

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