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Guinness posted:If you're out of tax-advantaged accounts to stash your savings, it seems like it could be a way to overload your 401k contributions, although at an interest rate of only 4-5% not by much. If you did it during a prolonged down market it seems like the payoff could be non-trivial. Of course, that would require timing the market and we all know how well that goes, statistically. No no no, unless you are poverty line, you are paying back your 401k with post-tax money and you will lose after taxes. Then you will be taxed on your (eventual retirement) withdrawal and now you're paying the government somewhere between 30-60+% of your loan in taxes.
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Sep 23, 2014 22:43
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baquerd posted:No no no, unless you are poverty line, you are paying back your 401k with post-tax money and you will lose after taxes. Then you will be taxed on your (eventual retirement) withdrawal and now you're paying the government somewhere between 30-60+% of your loan in taxes. Yeah, I figured there had to be something I was missing.
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Sep 23, 2014 22:46
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Barry posted:Bravo on finding this! This is Grade A, 100% pure bad with money. It's even better because he's so combative and surly and is obviously not telling the whole story. This is the case. He has overspent considerably and is living well beyond his means. He wants to access HIS MONEY which he actually doesn't have because he's maxed out his credit cards and actually owes a lot of money. There's something else going on here where he may have issues with his trading, but maybe not if everything is tied up in assets that he can't or won't liquidate. I wish he had stated how much he owes on those cards as I bet he's had cards where they've increased the limits to an insane level.
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Sep 23, 2014 22:51
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Devian666 posted:I wish he had stated how much he owes on those cards as I bet he's had cards where they've increased the limits to an insane level. He says it in a comment. $17k.
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Sep 23, 2014 23:20
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 bitter rage-quit follow up comment:quote:Why does this subreddit even exist? Someone splurges one year in there life and they (i) haven't learned there lesson (ii) are a poor planner (iii) have no credit worthiness? Wtf...... I'm talking about borrowing from my own money here. Problem is I need a measily $7k that banks in the past wouldn't have ever flinched in providing. This guy is so incoherent and disconnected from reality it's great.
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Sep 23, 2014 23:46
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"My experience is unique" 
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Sep 24, 2014 00:23
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"Problem is I need a measily $7k that banks in the past wouldn't have ever flinched in providing." It's almost like changes in the economy and loan practices are there because something happened with rates and the ability for people at large to both borrow and fail to repay what they borrowed. But what do I know?
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Sep 24, 2014 00:45
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Man. If you make 6 figures and you can't come up with $7k, you're doing some
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Sep 24, 2014 00:50
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He's like the opposite of people who say the U.S. should be run like a household with no debt...he wants to run his personal life like a country, with deficit spending and all. He's like the personal finance version of Dick Cheney. "Deficits don't matter!"
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Sep 24, 2014 00:51
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slap me silly posted:Man. If you make 6 figures and you can't come up with $7k, you're doing some *Makes 7 figures but still overspends by $17k and wants to spend another $25k. What I'm gathering from that thread is he's all in on some trade/failed trade. I remember this poo poo in the years running up to the 1987 crash. Might as well mortgage your house to buy high and sell low.
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Sep 24, 2014 01:28
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"Problem is I need a measily $7k that banks in the past wouldn't have ever flinched in providing." Yeah they don't flinch at loaning that amount to someone with no debt. They do flinch when you're 85% maxed out. Jesus christ this is credit 101. And if you're at 85% debt to credit ratio no you do not have great credit anymore, all the lenders are flagging you as an irresponsible risk. Yeah, definitely missing detail. Maybe he does make 100k a year but he makes it all in December.
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Sep 24, 2014 02:12
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What I'm thinking is that he needs the $25k for a margin call. It's a situation where he may have to exit positions and lose money in the process. It could be the scenario that's got him flipping out.
Devian666 fucked around with this message at 03:58 on Sep 24, 2014 |
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Sep 24, 2014 02:36
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Devian666 posted:What I'm think is that he needs the $25k for a margin call. It's a situation where he may have to exit positions and lose money in the process. It could be the scenario that's got him flipping out. I was thinking the same thing.
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Sep 24, 2014 02:59
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Devian666 posted:What I'm think is that he needs the $25k for a margin call. It's a situation where he may have to exit positions and lose money in the process. It could be the scenario that's got him flipping out. Then he's an extra extra special idiot. When you get margin called you usually must meet the call the next business day or your broker will start liquidating you. And meeting the call means guaranteed funds in your brokerage account, not "check is in the mail" or "ACH transfer is in progress". You simply can't get good funds that quickly from a 401k/credit card loan even if you have the available credit.
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Sep 24, 2014 03:40
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I think that maybe the guy with shiatloads of debt is Shia Lebeouf. It's really the only thing that makes sense
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Sep 24, 2014 03:47
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canyoneer posted:I think that maybe the guy with shiatloads of debt is Shia Lebeouf. It's really the only thing that makes sense No way, that guy is out chasing down and cannibalizing hikers in the woods. He's got no time for day trading with a schedule like that.
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Sep 24, 2014 06:19
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SlapActionJackson posted:Then he's an extra extra special idiot. When you get margin called you usually must meet the call the next business day or your broker will start liquidating you. And meeting the call means guaranteed funds in your brokerage account, not "check is in the mail" or "ACH transfer is in progress". You simply can't get good funds that quickly from a 401k/credit card loan even if you have the available credit. Why hasn't he complained yet that if his 401k is tapped, why isn't he able to withdraw from his future Social Security instead? He could be renting so much more about the future value of his money, and so on.
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Sep 24, 2014 13:43
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Magic Underwear posted:I want to murder this person. It was bad enough that he said "shiat" six times, then he said "vaca" and I started seeing red.
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Sep 24, 2014 14:00
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Old Fart posted:I'm glad I'm not the only one. e: actually nevermind, I was misremembering. Renegret fucked around with this message at 14:04 on Sep 24, 2014 |
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Sep 24, 2014 14:01
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Magic Underwear posted:I want to murder this person. It was bad enough that he said "shiat" six times, then he said "vaca" and I started seeing red. This loving moron makes $100k a year. gently caress me. Life is really unfair. Odds are he also says "yolo" without irony.
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Sep 24, 2014 16:54
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baquerd posted:No no no, unless you are poverty line, you are paying back your 401k with post-tax money and you will lose after taxes. Then you will be taxed on your (eventual retirement) withdrawal and now you're paying the government somewhere between 30-60+% of your loan in taxes. But your distribution/loan is non taxable, so it sorta evens out (except for the interest).
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Sep 24, 2014 17:00
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LorneReams posted:But your distribution/loan is non taxable, so it sorta evens out (except for the interest). Not really. If you take a 10k loan out of a 20k IRA, then you pay it back with money that's been taxed, it will be taxed again when you retire. That the distribution itself isn't taxed doesn't change the fact you're ultimately getting taxed twice on the amount you take out.
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Sep 24, 2014 17:13
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Nail Rat posted:Not really. If you take a 10k loan out of a 20k IRA, then you pay it back with money that's been taxed, it will be taxed again when you retire. That the distribution itself isn't taxed doesn't change the fact you're ultimately getting taxed twice on the amount you take out. Does that make it strictly better to just remove the money and pay a penalty, and put "repayments" towards investments? It's hard to tell if income tax + capital gains + penalty ends up as more than 2x income tax or not but I bet it's close.
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Sep 24, 2014 17:18
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Nail Rat posted:Not really. If you take a 10k loan out of a 20k IRA, then you pay it back with money that's been taxed, it will be taxed again when you retire. That the distribution itself isn't taxed doesn't change the fact you're ultimately getting taxed twice on the amount you take out. I thought that only the interest is money you're paying back with post-tax money. Technically, it isn't a withdrawal from the account, but it works a lot like one. I borrow $10k against my $20k 401k balance. I don't pay taxes on that $10k as income, because it's a loan. Then I pay back $11k after interest. Only that extra $1k is the only money that I've paid taxes on, right?
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Sep 24, 2014 17:24
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Folly posted:I thought that only the interest is money you're paying back with post-tax money. Technically, it isn't a withdrawal from the account, but it works a lot like one. I must not be thinking about this right, but it seems to be a wash. Intial 20K amount is pretax. The 10K distribution is not taxed, the 11K repayments is post tax, and the final distribution is taxed. Imagine you took the 10K and put it in an account that repayed the loan monthly (minus the interest). The interest is the only element that is an additional post tax burden.
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Sep 24, 2014 17:29
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Doesn't what you spend the loan on matter? For instance if you bought something that retains value, then it ends up being a wash. If you took the 10k and set it on fire, then whether or not the loan distribution was technically 'pre-tax' money is irrelevant, right?
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Sep 24, 2014 17:30
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A lot of people in this thread who seem to not understand the difference between a loan from your 401k vs an early distribution from your 401k. Specifically: Nail Rat posted:Not really. If you take a 10k loan out of a 20k IRA, then you pay it back with money that's been taxed, it will be taxed again when you retire. That the distribution itself isn't taxed doesn't change the fact you're ultimately getting taxed twice on the amount you take out. What are you talking about? You get a deduction for contributing to the 401k (or IRA) initially. Taking a loan has no tax effect. The ultimate retirement distribution is taxed. There is no double taxation in this. Admiral101 fucked around with this message at 17:38 on Sep 24, 2014 |
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Sep 24, 2014 17:31
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Admiral101 posted:A lot of people in this thread who seem to not understand the difference between a loan from your 401k vs an early distribution from your 401k. In all the important parts, it's treated the exact same way.
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Sep 24, 2014 17:32
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LorneReams posted:In all the important parts, it's treated the exact same way. I think that's only true if you default. If I remember right, the big difference of "is this money taxed" is still in play as long as you don't default. I can't remember for sure though. I only ever looked at once when I needed a bridge loan to buy a new house before my old one sold. And the old one was already under contract with a pre-approved financing letter, so it was very short term/very low risk and I could make the payments anyhow if it fell through. I couldn't do it for other reasons, though. So I quit researching fairly early in the process.
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Sep 24, 2014 17:41
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LorneReams posted:In all the important parts, it's treated the exact same way. Do you have some kind of citation for this? Loans from 401ks are not subject to early distribution taxes or penalties. http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Loans#3 Specifically: quote:Loans are not taxable distributions unless they fail to satisfy the plan loan rules of the regulations with respect to amount, duration and repayment terms, as described above. In addition, a loan that is not paid back according to the repayment terms is treated as a distribution from the plan and is taxable as such.
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Sep 24, 2014 17:43
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Folly posted:I think that's only true if you default. If I remember right, the big difference of "is this money taxed" is still in play as long as you don't default. They liquidate the accounts and give you the money. Your repayments "restore" those amounts (at market values, so hope the market tanks right after your loan!). Functionally it works like you withdrew that amount of money, the difference being your contract to repay removes the tax liability so it's technically a loan distribution (in name only). EDIT: Above, your citation says this (basically as soon as it stops being a performing loan (default), it becomes a real distribution).
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Sep 24, 2014 17:45
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LorneReams posted:They liquidate the accounts and give you the money. Your repayments "restore" those amounts (at market values, so hope the market tanks right after your loan!). Yes - because keeping the money as opposed to repaying it makes it no longer a loan. I'm baffled how you consider getting $X amount of money for Y amount of days with no tax liability or penalty consequences to be functionally the same as an early 401k distribution which taxes you at the marginal rate plus a 10% penalty.
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Sep 24, 2014 17:48
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Admiral101 posted:Yes - because keeping the money as opposed to repaying it makes it no longer a loan. I'm saying it's functionally the same (how they handle the withdrawal), with the tax liability being the only difference. Some people think that a loan is just secured by the investments, but no, you are cashing out your investments and getting the proceeds directly.
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Sep 24, 2014 17:50
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Why would someone take out a 401k loan anyway? That always seems like the dumbest thing someone can do, yet it seems like I'm always meeting someone who's done it or is going to. Cripes, even my mom did this while she was working. I asked her why, she said "I had to pay off some credit cards." 
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Sep 24, 2014 18:37
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BigDave posted:Why would someone take out a 401k loan anyway? That always seems like the dumbest thing someone can do, yet it seems like I'm always meeting someone who's done it or is going to. Because you'll be paying a vastly lower interest rate to your own 401k as opposed to paying a higher rate to the credit card company. It's not a bad idea. The problem comes in because people who are in debt far enough to warrant taking loans from their 401k generally aren't going to be consistent in paying back their 401k loan. Which is when Bad Things Happen. A better move would be to roll the credit card debt onto another credit card that's offering the 0% APR for a year deal - assuming you have a credit score that can get you that.
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Sep 24, 2014 18:48
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Folly posted:I thought that only the interest is money you're paying back with post-tax money. Technically, it isn't a withdrawal from the account, but it works a lot like one. Yes, this is correct - the effective double taxation is only on the interest you're "paying yourself".
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Sep 24, 2014 18:57
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LorneReams posted:They liquidate the accounts and give you the money. Your repayments "restore" those amounts (at market values, so hope the market tanks right after your loan!). Wow, so the lender actually faces ZERO risk here. Your interest should just be the administrative costs. Just how low are these rates?
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Sep 24, 2014 19:12
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Folly posted:Wow, so the lender actually faces ZERO risk here. Your interest should just be the administrative costs. Just how low are these rates? The interest is not for risk, it's supposed to represent the loss value of not having your money in the market. The interest is being deposited into your account.
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Sep 24, 2014 19:18
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LorneReams posted:The interest is not for risk, it's supposed to represent the loss value of not having your money in the market. The interest is being deposited into your account. That's actually entirely sensible. Too sensible, in fact, to be a law. That must be why we're all having such a hard time with it.
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Sep 24, 2014 19:40
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Folly posted:That's actually entirely sensible. Too sensible, in fact, to be a law. That must be why we're all having such a hard time with it. Yeah, I'm pretty sure that's what I was getting hung up on earlier. It all sounds entirely too reasonable and un-punishing. It makes me a lot less leery about 401k loans (of course I still don't intend to make one). But of course the bad with money part is that almost everyone taking a 401k loan is doing it for a terrible reason and will probably mismanagement and have it blow up in their face.
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Sep 24, 2014 19:42
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