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loans from 401K?....need advice on our dormer situation
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ODonnell
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Member since 9/05 5983 total posts
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Re: loans from 401K?....need advice on our dormer situation
I'm no financial expert, but if you have sufficient equity in your home, I would do a HELOC. Anything under $100K is at a pretty low rate these days.
I wouldn't touch my 401K for this. In our current economy it will take longer to make up the 100K than it did over the more recent prosperous years your DH has been investing.
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Posted 4/12/10 12:33 PM  |
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HelenZ
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Member since 10/07 2862 total posts
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Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by Annie91606
I was a plan administrator for my old company's 401(k) for 7 years.
I always advised my employees to go the loan route before a withdrawal. Once the money is out of your account- it is GONE- and you lose some of the money to taxes right off the bat.
The big downside of a loan, however, is one that a lot of people do not realize. Despite the fact, that you are replenishing your account when you pay the loan back (with interest), you are losing the earnings you would get on that money while you are paying it back into your account.
So, instead of getting earnings on $110,000, you would only get them on $60,000 (or whatever your account balance will be after you borrow from it). I had a consultant do a chart for our employees to illustrate the impact this has on your account balance when you retire- it was significant.
One way to reduce this is to pay the loan off early, most companies will let you do that. If you can double up your payments or make a huge payoff before the 5 year period is up- it will help alleviate your loss on the earnings.
Hope that helps! GL!!
thank you SO MUCH for all this info!! much appreciated! 
to give you more info- his balance is about $120K and there would be $80K after the loan or withdrawal. DH has been extremely stubborn about where he invests it, he's kept it in a money market ever since his dad's 401K was wiped in half in 2001. He'd rather be ultra conservative, despite only being 35 and having plenty of time to take risks. maybe if he insists on a withdrawal instead of a loan I should insist he invest it in something w/ a better return! lol that would hopefully make up the difference at least!
here's another question for you, right now DH is laid off (it's not a permanent layoff, but he'll probably be laid off until at least November or December at this rate, unless his shop picks up some big contracts).....so can he even take a withdrawal while technically not working? or is a loan his only option?
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| Posted 4/12/10 12:39 PM |
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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by Blu-ize
Posted by LSP2005
I would never touch the 401k for what you want to use it for. Eating yes, to pay the mortgage because both had lost jobs, an emergency fine, but because I wanted a bigger house. No never. I am sorry that I don't have any suggestions, but you asked for opinions and this is mine.
ITA. Bad idea, IMO.
DH has been out of work for 5 mos and it's getting tight but I'm still not touching it and we have a lot more than $100k in there.
It's not just the 10% penatly. You will pay taxes and you will be losing all of the growth in the market right now. I'm sure your account is not where it was 2 years ago.
actually since he's always opted to invest in a money market acct (he won't budge on this either), he has seen steady growth in his 401K, but it's still not what it would be had he opted for more moderate investment choices. he's had the acct for about 10 years.
The interest paid back to the 401K acct on a loan might even exceed his return from investing in a money market!! lol
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| Posted 4/12/10 12:43 PM |
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HelenZ
So worth the wait :)
Member since 10/07 2862 total posts
Name:
Helen
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Re: loans from 401K?....need advice on our dormer situation
Posted by Cpt2007
do not touch the 401k. take a heloc instead.
100k might sound like a lot right now with at least 30 years more of work ahead of you, but right now, to retire comfortably, the avg couple needs to have *at least* $1M in retirement accts. Most people in the NYC-metro area will need more than that.
Really, do not, for anything unless dire extreme circumstances (like you are going to lose your home or need to eat), touch the 401k.
good point, cost of living I'm sure will be double what it is now in NYC, and it's already high!! good thing DH wants to move to the countryside eventually! 
oh and I wanted to add, our roof has been leaky (although we did have a crazy amount of rain this year!), so that's why we would need to do the improvements sooner rather than later (and we're not going to pay for a new roof and then extend the dormers in a year or two).....so a loan is inevitable, it's just going to be a matter of which route we take.
thanks again for all the feedback!!
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| Posted 4/12/10 12:49 PM |
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Annie91606
Brotherly love
Member since 12/07 1816 total posts
Name:
Anne
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Re: loans from 401K?....need advice on our dormer situation
Posted by HelenZ
Posted by Annie91606
I was a plan administrator for my old company's 401(k) for 7 years.
I always advised my employees to go the loan route before a withdrawal. Once the money is out of your account- it is GONE- and you lose some of the money to taxes right off the bat.
The big downside of a loan, however, is one that a lot of people do not realize. Despite the fact, that you are replenishing your account when you pay the loan back (with interest), you are losing the earnings you would get on that money while you are paying it back into your account.
So, instead of getting earnings on $110,000, you would only get them on $60,000 (or whatever your account balance will be after you borrow from it). I had a consultant do a chart for our employees to illustrate the impact this has on your account balance when you retire- it was significant.
One way to reduce this is to pay the loan off early, most companies will let you do that. If you can double up your payments or make a huge payoff before the 5 year period is up- it will help alleviate your loss on the earnings.
Hope that helps! GL!!
thank you SO MUCH for all this info!! much appreciated!
to give you more info- his balance is about $120K and there would be $80K after the loan or withdrawal. DH has been extremely stubborn about where he invests it, he's kept it in a money market ever since his dad's 401K was wiped in half in 2001. He'd rather be ultra conservative, despite only being 35 and having plenty of time to take risks. maybe if he insists on a withdrawal instead of a loan I should insist he invest it in something w/ a better return! lol that would hopefully make up the difference at least!
here's another question for you, right now DH is laid off (it's not a permanent layoff, but he'll probably be laid off until at least November or December at this rate, unless his shop picks up some big contracts).....so can he even take a withdrawal while technically not working? or is a loan his only option?
Happy to help I have actually been a SAHM for the past year, so reading about this brings back a lot of old knowledge!
The fact that he is laid off temporarily should not make a difference, according to most plan rules you can do a loan or a withdrawal as long as you are still an employee (this includes employees on sick leave, etc.)
I do agree with PP's that indicate that taking money from his 401(k) should be a last resort (loan or withdrawal) after you have looked into all of your other options for obtaining this money. It sounds like DH is on a good track with his balance at age 35 and I would hate to see you guys dig into that. But I am sure you will figure out the best option for you. It is great that you are gathering information before you do anything!
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| Posted 4/12/10 1:12 PM |
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Erica
LIF Adult
Member since 5/05 11767 total posts
Name:
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Re: loans from 401K?....need advice on our dormer situation
Don't take money out of your 401K.
1. 35 is not young in terms of retirement and time needed to build a portfolio. by 35 you should have 3-5 times your salary in retirement accounts. $120K doesn't sound like enough to me at this point.
2. By taking out the 401K loan you will be selling low and buying high (when you put the money back in) - so you will take a hit there, plus lke the PP mentioned you are only earnng on the smaller balance in the meantime.
3. If his job is unpredictable and he is permanantly laid off, how will you pay back that money?
4. Your 401K is protected in bankruptcy cases.
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| Posted 4/12/10 9:38 PM |
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| Pages: 1 [2] |
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