borrowing from 401k

[AWW$HEEET]

Anyone done this, and have any feedback? I have a few questions:

1. How much are your payments? What is the payment $ amount based on?

2. What interest rate?

3. How fast was the process from the time you initiated it, to the time you received the $?

4. I understand your payment is deducted from your paycheck, but if you want to at any time pay it back in full, are you able to?

[grapesmuggler27]

http://retireplan.about.com/od/401kplans/a/401k_loan.htm

[r1crusher]

I did this in the past with my Fidelity 401k. Payments are calculated like any other loan you get (borrowed amount / loan term (months) = payment...basically less the interest of course). Rates will vary but I would guess current rates would be between 4-8% probably but again it's up to the company. I had my check in a couple days from Fidelity. I thought there was something in my loan about paying it back early but don't recall the exact stipulations. One good thing at least with my loan from my 401k was that the interest that I paid was to myself and it went back into my 401k.

[jblosser]

- you can borrow up to $50,000 or 1/2 of the amount in your plan, whichever is LESS.

- term is usually 5 years, unless the reason is to purchase a house.

- inerest rate? who cares, you're paying yourself.

- realize that you will have less money earning/growing in your account.

- realize that you will be repaying the loan with after-tax dollars, and then when you reach retirement age and start your withdrawls, you'll get to pay tax on that money again...

- if you quit or get fired, your loan is usually required to be paid back, in full, within 60 days.

I would only borrow from a retirement savings plan in the most dire of situations, after every other option had been exhausted.

just my ever-so-humble opinion and $0.022 worth.

[Gixxus Christ!]

I've taken out 3 small loans ($1200-$1500) and always set the term as one year. Payment ends up being like $30/week. I like it, if I see a good deal on a bike or something else I want I can scoop it up without deflating my savings. Interest rates vary with the fed prime but its never much over.

[Gump]

I've taken out 3 small loans ($1200-$1500) and always set the term as one year. Payment ends up being like $30/week. I like it, if I see a good deal on a bike or something else I want I can scoop it up without deflating my savings. Interest rates vary with the fed prime but its never much over.

It's normally 1.5% over prime. And a $100 one time fee or something.

Edited February 27, 2013 by Gump

[99FLHRCI]

Interest rate is low (1.5% over prime sounds right). Payments are what you want them to be within limits (you decide the amount and the term up to 5 years). That being said, I currently have had 3 loans. Two for one year (to pay off higher interest longer term loans) and a 5 year (bought a vehicle). I think they work great and I am happy to pay myself interest. You do need to compare the loss/gain of not having that money on the market. If the economy booms you lose potential profit money because you haven't payed it back yet. If it tanks, you don't lose as much (basically gain) because you didn't have as much to crash. My one time (application/origination) fee was $75 on the first two and $125 on the last one.

[Revelstoker]

As others have said, you are borrowing from yourself so the interest rate is of no matter. Paying back quicker is better than letting it draw out.

There are hardship withdrawals depending on what you need the money for. The biggest catch with a loan is that you have to fully pay back the loan if you quit or are terminated with an outstanding balance.

It is not a bad way to go but borrowing from these plans should be a last resort and not treated as a savings account.

Check with your administrator for the TnCs

[C-bus]

I would not do it if paying off credit cards. It's who do this will quickly have credit cards and loan debt.

[smccrory]

IMHO borrowing money to pay for a hobby is an awful idea. And even though it sounds like you're paying interest to yourself, you're removing that money's productivity and tax advantage. Don't do it. Save up the cash first.

[smccrory]

(Of course if you're talking about a health emergency, that's a wholu different matter - do what ya gotta do)

[Sen10nalz]

I have borrowed from my 401k and here's how mine went down.

1. Payments are depended on how long you want to take the loan, 1-5 years, depnding on company. I did a one year loan and paid 250 a check back. So 500 a month.

2. The interest rate was 4 percent. however your paying interest to yourself. The fee to get the loan is around 95 bucks. (this was for my company)

3. The funds came within 3 days of me requesting it. However i work at a brokerage firm and we request it online. I may take a week.

4. You are able to pay it back in full when you want to.

Anyone done this, and have any feedback? I have a few questions:

1. How much are your payments? What is the payment $ amount based on?

2. What interest rate?

3. How fast was the process from the time you initiated it, to the time you received the $?

4. I understand your payment is deducted from your paycheck, but if you want to at any time pay it back in full, are you able to?

[madcat6183]

Biggest thing I see here is that taking money out of the 401K defeats the purpose of growth from returns. Im not saying it's a good or bad idea, but in the end, the point of a 401K is to earn return for retirement, not just to use as CCD, personal loan, or savinging account. If that was the case just put money in a savings and WD it or under a mattress.

However I do know it works for some people and they have had great success, just not what I think of when I think of 401K and why I am investing.

[AWW$HEEET]

Thanks for all the input.

Ive resigned to the fact that I will probably never retire, but I am also not ready to take 40% hit on my 401k for withdrawing it in full. I would be taking this money out for short term (1 year possibly), to start a side business.