Gjac wrote:
Ideally you want to finance appreciating assets like a house or property and pay cash for depreciating assents like a car or RV. But another way to do this if you can't pass up a good deal and don't have the money is to borrow the money from your 401k. I just learned that you can borrow up to $50K from your 401k at 10% interest for 5 years. This is your money so you would be paying yourself back with interest and it would be a way to put more money into your 401k. Not sure how many people know this as it would be better than paying interest to the bank.
There are negative aspects of borrowing from your 401k. I've been warned against it in financial seminars. Credit karma puts it best:
1 The money you take out will no longer be able to earn compounded interest, meaning that you can put a serious dent into your post-retirement funds by taking out a loan. And, the longer the term for repayment, the more devastating the impact this particular downside will have.
2 The payment may hamper your ability to continue making future contributions to your account. This will also reduce the amount of money you will have in your account for your retirement.
3 If you lose your job, the remaining balance on your loan will be due within 60 days of termination. Failing to pay it back within the timeframe will result in a default on your loan, which is extremely expensive. Not only will you have to pay regular income tax on the money, but you will have to pay a 10 percent penalty fee for early withdrawal.
4 You will have an additional tax liability. Payments on your 401(k) loan are withdrawn from your paycheck on an after-tax basis, not like your pre-tax contributions. So, your paycheck will not only reflect a lower amount due to your payment, but will have additional taxes withheld.
I did it to buy a house one time, but I would never do it to buy an rv.
