its not bad. i did the calculations about 1k per month. so it’ll essentially take over my car payments that end this feb.
i figure taking out a loan will:
reduce my risk to the stock market. S&P 500 specifically.
i pay myself the interest about 4%. worth about 2k/year.
i use the money to make more money. a 10% return. worth about 5k/year.
my nigga mla, what you think?
the key risk, if i lose my job before feb. im royally fooked.
FTFY
so you transfer money from your right hand to your left, and you feel richer somehow?
I fail to see how this is better than the S&P 500. Actually, it’s probably worse, because you will probably recognize taxable income as a result.
( Unless, of course, there were lower risks or higher return–that is, Higher enough return to offset the tax effect and the “tax risk” of the premature distribution.)
Dog… your hit with a 10% penalty for a non-qualified distribution from a qualified vehicle. Plus you are reducing your basis assuming your dollar cost averaging unless your specifying which lots your are withdrawing. Check yo self
What are you going to invest in to get a 10% return with no stock market risk, and that is better than your 401k options? Anyway, you know how to make $50k for sure? Sell one Mercedes E Class and get a Toyota Tercel. Amiright??
lol spit out my whisky when i saw Tercel. well done ohai.
Please explain this.
Today’s signs of a bubble: 1) this guy’s post, 2) Eminem’s music library is now a publicly traded stock?, 3) a new Bitcoin exchange is opening, and 4) WMT at 78 has higher EPS than AMZN at $985.
if you take a distribution from a qualified vehicle (401k, IRA) prior to the age of 59.5, you will be subject to an additional 10% penalty on the amount you withdraw… for a roth ira, you are subject to a 10% penalty on the CAP GAINS not the principle contributed if the distribution is taken prior to 59.5. if you take a distribution, you have 60 days to reinvest the money back (rollover) into a qualified plan in order to avoid the penalty.
there are exemptions that enable you to draw from your 401k without penalty ( first home purchase, hardships, disabilities, medical expenses, death of plan owner) but I recommend you speak with your financial advisor before doing so.
as for the basis - i simply meant that OP likely has contributed to his plan from each paycheck… so his initially lots vested would be at a cheaper cost… bc its a qualified plan, cost basis is irrelevant. i was referring to profitability not taxability.
Thank you for the explanation. However, OP was referring to taking a loan from his 401(k), not a distribution. His reasoning may be sound.
Greenie touched on it, many (but not all) plans also require you to pay back the entirety of the loan balance if you leave your job for any reason (fired or quit).
It’s generally a very bad. That said, I did take out a loan against my 401k to help with the down payment of my house many years ago. I needed the extra cash to get to 20% to avoid PMI which is absolutely a good deal.
funny story. the reason why this is all happening, is cuz my parents wanted to withdraw 15k from their 401k. they still have a 40k loan in their 401k.
now my mom makes about 150k, so its a big nono for her to take it out. so 10% penalty + 28%.
so i offered her a way out.
25k loan from me at 10%.
other 25k. i’ll prolly just sit in cash until february hits and i can relever my car, in case i get axed. lol
set up fee for loan is $75. rate at 5.25% for 59 mos.
worst case isnt a 10% penalty/distribution. but i may take out my contributions in roth 20k. i also have 10k liquid. and i do have extra money coming in 30k end of year. by february everything will be good, cuz i’ll just lever my car at 20 to 25k.
also i know a biz that has a good roi, ~10 to 20% cagr net of everything. but its still too early for me to reinvest on it (35k investment). need a full year’s data. so cant make decision until this upcoming march. i also dont know how much work it’ll be for my buddy.
anyways. imma do it! Its lit!
https://www.thefader.com/2017/09/25/eminem-catalog-publicly-traded-royalty-stock
soooo cool
Neighbors have a Benz, so you need to get a Jaguar. Next thing, you’ll tell us that we’re expected to live without new Italian marble tiles in our 5000 sf houses. I thought this was supposed to be the land of opportunity.
You’re charging your mom 10%?
is it too high? their credit cards will be 20%, when they teaser rate expires. the 401k distribution is taxed at 38% upfront. 10% sounds fair to me.
If you’re gonna take a loan out of your 401k and it’s not for a down payment, then you better be investing in something with at least 20% IRR, preferably in writing. That’s my take. This is family stuff though, so whatevs
ps. thanks for the shout out. i love how i’m the go to US advisor although i’m a Canadian resident 
the situation you have presented above seems like a good deal for you but a terrible deal for your parents so they are basically just subsidizing your deal.
your mom can’t access $40k in cheap credit despite having a $150k income? nor can she wait for 6-12 months and combine savings with cheap credit to reach $40k? if your mom can get a loan at ~6% or lower (guessing, there are unknown tax factors here), this doesn’t make sense. it would be a net loss for your family.
You’re not taking a distribution, you’re taking a loan, so how’s it being taxed 38% upfront? Maybe your family’s dynamics are different, but the Mrs. and I charged my mom 0% when we gave her a bridge loan for her new place, ditto for the loan to my wife’s brother for his new place.
10% interest to the woman who shot you out of her birth cannon? That’s cold…