The Ongoing New Financial Era Thread

Blue&White
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Re: The Ongoing New Financial Era Thread

Postby Blue&White » Wed May 29, 2019 2:03 pm

I'll be skeptical of China going "scortched earth" until it actually happens. We'll see. As for Trump holding the line, he has no choice. Politically, he can't back down.

If I had to lay a wager, I'd wager that Trump and China find some compromises where both sides can declare victory and walk away without either side really getting what they wanted.
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Blue&White
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Re: The Ongoing New Financial Era Thread

Postby Blue&White » Wed May 29, 2019 3:23 pm

So, financial question: has anyone ever borrowed against their 401k? I am considering doing it but am looking for some insight. From what I read, you can borrow up to $50,000 (I would not take that much) and you have to pay it back within 5 years, plus interest.

Anyone have any experience? How long does the process take? How was the interest rate? Was it reasonble? I'm sure it's more than a HELOC but how much more?

And, yes, I know the downside of this and the potential penalties if I failed to pay it back. That much I am aware of.
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psu_dad
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Re: The Ongoing New Financial Era Thread

Postby psu_dad » Wed May 29, 2019 4:22 pm

I did it once, back in the mid-90s when I bought my current house. I was closing on my old house in the morning and using the proceeds to close on my new house in the afternoon. My attorney suggested I look for a backup plan in the (unlikely) event that the morning closing went kaput. So I borrowed against my 401K, for just a day as it turned out.

The process was simple, or at least it was made simple by the woman in HR who handled it for me. I signed a form she gave me and she arranged to have the check ready for me the day before the closing. I never cashed it. The next day I just endorsed it and returned it to her as repayment, per her instructions.

I don't recall the interest rate, but I do recall that the entirety of each payment (principal and interest) goes back into your account. So I didn't give it much thought.
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Blue&White
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Re: The Ongoing New Financial Era Thread

Postby Blue&White » Wed May 29, 2019 4:45 pm

I don't recall the interest rate, but I do recall that the entirety of each payment (principal and interest) goes back into your account. So I didn't give it much thought.

So, you pay interest back to yourself? I heard that before but wasn't sure it was correct. If that's right, then there is zero downside (provided you pay all the money back).

And, my timeline will be longer than yours. I'll need the cash for between 12 and 24 months. Not completely sure yet. Still trying to work out the details of what I need to do.
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psu_dad
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Re: The Ongoing New Financial Era Thread

Postby psu_dad » Wed May 29, 2019 4:55 pm

So, you pay interest back to yourself? I heard that before but wasn't sure it was correct.

Unless the rules have been changed (and I don't believe they have) that is correct.

There is still some "cost" associated with this. You lose any gains that the money you borrowed might have accrued had they remained invested. But there's a cost to pay for any loan.
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hbendle
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Re: The Ongoing New Financial Era Thread

Postby hbendle » Thu May 30, 2019 12:15 pm

I'm surprised. It makes it seem like a first resort instead of the last resort everyone portrays it for these days. Home equity, auto loan, personal loan, etc. are typically favored for curing credit debt, emergency needs, and so on. Now I want to loan myself money for a new car!
I can certainly see the potential disaster for habitually cycling your 401k for expenses though.

psu_dad
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Re: The Ongoing New Financial Era Thread

Postby psu_dad » Thu May 30, 2019 1:25 pm

I can certainly see the potential disaster for habitually cycling your 401k for expenses though.

I suspect that's why you're required to pay back your own money with interest. Otherwise, if you used this feature often, your 401K balance would suffer from the loss of earned interest. This is probably Uncle Sam's way of making sure people don't get derailed from saving.
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Blue&White
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Re: The Ongoing New Financial Era Thread

Postby Blue&White » Thu May 30, 2019 1:36 pm

I agree.

I'm not looking to do this lightly. I just have a temporary situation and this is the best way to resolve it. I'd rather use a HELOC, and I still may, but, for reasons not worth getting into, that may not be an option. But, in general, the ability to just borrow out of your 401K seems like it should be more of a challenge than it appears to be.
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psu_dad
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Re: The Ongoing New Financial Era Thread

Postby psu_dad » Thu May 30, 2019 2:05 pm

Testing ...

----------------

Interesting. If I Submit a comment, no problem. If I try to Preview it first, I get an error (Illegal use of $_COOKIE.). Even for the simple comment above.
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Blue&White
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Re: The Ongoing New Financial Era Thread

Postby Blue&White » Thu May 30, 2019 2:26 pm

I just tried doing a preview of a post to test it and have the same problem. I guess the site wants you to throw caution to the wind and post free style without checking it first.
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