I’m Borrowing $50,000 From My 401(k) – Here’s Why

There are tons of articles out there waring about the dire consequences of borrowing from your 401(k) – you know, not earning money on the withdrawn amount, double taxation, early withdrawal penalties and having to repay immediately if separate from the company…I’m going to lay out why my particular situation and outline why none of these “risks” matter and my transaction will work out beautifully.  So, be prepared for some unconventional wisdom!

First off, many people are either misinformed or irresponsible and would have been better off having NOT borrowed from their 401(k).  But financial pundits like to compartmentalize ALL situations into a single bucket and paint something as “good” or “bad”.  Generic cookie-cutter advice is often wrong and doesn’t apply to individual cases.  My scenario is different and as you’ll see, I’m VASTLY better off borrowing from my 401(K) than not.

Read more about Why I’m Borrowing $50,000 from My 401K(k)

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Golden Tool
Golden Tool

Good article. Similar to market timing being bad, because who wants to buy low and sell high. I mean really that’s how you lose money isn’t it? Smart money beats dumb money 95% of the time (<–yep made up that statistic) and there is a lot of dumb money out there. The only thing unknown, until to late, is if you're the smart money and the banks like it that way… Kind of like going to a buddies place for a game of poker looking around the room and not seeing a fish. If you can't see it chances are you are it. That's where smart money gets out. Dumb money doesn't know the difference has a good time, gets drunk, and can't remember where all the money went the next day. Good times for all.

Do unto others.

major mocambo
major mocambo

Really? I hope that university has low tuition. I hope that university teaches things that will be useful going forward. Since when does this site support this marketing shit? I think I would be asking “In a collapse, even as slow and unpredictable as this one we are in, does being in 401k make sense at all?”. I don’t think fringe conventional wisdom will cut it. You’d best be asking yourself where should my money be as our financial system unravels and our energy costs go sky high.

eugend66
eugend66

Grab the monies, don`t forget Caesar`s cut, get out of debt and be happy.
+1 !!

ncognito
ncognito

The 401k was suppose to be one of those “set it and forget it” things. When people reach a point when they have to borrow against it FOR WHATEVER REASON, then your doing something wrong.

I remember reading posts during the housing bubble by people who “thought” too much, explaining why they were going to use an ARM loan. I tried to convince them otherwise. Well you know how THAT ended.

KaD
KaD

I don’t see how anyone can loose taking money out of their 401K since it won’t be worth the paper it’s written on in a few years anyways. Only why ‘borrow’ it? Just take it out period.

TeresaE
TeresaE

I borrowed against mine in 2007 at near market peak. The banks, thanks to a complicit and evil CONgress, quadrupled my interest rates on multiple cards. Cards that had been used to do little “extras” like paying property taxes on our commercial building and catching up with the IRS. Not to mention the $6k we had to pay out of pocket because the insurance we can afford ain’t so great (now at more than double the cost!).

Anyway, I was making more than minimum payments, I had a plan and was working the plan to pay them off. I had been ‘guaranteed’ rates on a big portion of the debt. The banks screwed me.

Thankfully I knew the economy was a great big sham and that a day of reckoning was coming, so against ALL advice I cashed out a chunk of my retirement and used it to pay off the thieving bastard banks. As if I would have ever used those cards at 21% interest in the first place. I’m still making “payments” to my 401(k), I earning 8% interest on my OWN money, and with that have far beat the stock market. Now I’m looking at yanking out of the investments and just parking my money in cash until the next few months/years play out. I’m ahead of the game and really wish to stay there with this “untouchable” money.

Had I not borrowed against my 401(k), the banks would have earned thousands in interest, I would still have way too much debt (I’m almost 70% paid off from the “one-state” recession nightmare), and my 401 wouldn’t have recovered to the level it did. Sold high, paid back much lower, great deal for now.

And the worst case scenario is a 10% penalty and the income tax – which has to be paid eventually anyway. Still cheaper than paying Bank of America 21% now and gambling on my taxes being the same, or lower, in the future.

eugend66
eugend66

Ladies, you rock !

flash
flash

Why would anyone trust someone calling the themselves a 401K to keep and control their money?
And why should you have to ask them to make a loan to you using your goddamned money ,at interest even.

Anything -And I mean anyhting – concocted by the government is a damn crooked scam.

eugend66
eugend66

The rigged market we all are looking at gives little choices. My VHO.

howard in nyc

university student housing has been a solid investment. i’ve owned a couple of properties in my hometown, davis california, that did well (sold a couple near the peak in the mid-’00s, hence i am a genius).

my knee-jerk concern is that college education is yet another federal govt fueled bubble. along with all the other peaks, we may be past peak debt financing for overpriced undergrad degrees. along with all the other bubbles, i know it will pop; just don’t know when.

otoh, if i had an opportunity to buy into college housing at a good price in santa barbara/isla vista, walking distance to the beach, i’d snap it up.

i cashed out all my govt restricted retirement accts in ’08-09.

AWD

Darwin:

You are very wise to get your money out of your 401-k. The government is going to seize this money sooner or later, and issue you an “IOU”, which will be worth about as much as the dollars in your 401-k anyway. Good move, for whatever reason.

flash
flash

Bankers , the root of all evil.

http://www.youtube.com/watch?v=JqgDzEqdvb0

Terry
Terry

I am reminded of a co-worker who, just before the dot.com bust, borrowed every cent from his 401k. He used every bit of it to purchase two-hundred-dollar-something-or-other gold. He’s since sold only enough to pay off the loan.

Genius.

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