If you need some money (say $50k) for 3-4 months, would you take loan from 401k or sell stocks? I don’t want to pay tax on the gains from selling stocks. I am not sure which option is better.... P.s. I need to lend that amount to my brother and I’ll get it back in 3-4 months.
If you take a loan against your 401k you pay interest to yourself. Unless you quit your current job. http://www.401khelpcenter.com/loans.html#.Wwy6wctlAwA look at the pros section.
Hey so if you pay interest to yourself, is the interest treated like investment returns?
I'm not sure. But my understanding is that it's treated as pre tax 401k contribution just like your regular 401k investment. But I would confirm first.
I think you're better off just selling the stocks and planning on this being a gift instead of a loan. Treat it as a lucky surprise if he actually pays you back.
Ha. You are so right! Actually my dad’s going to give me the money on his behalf, so I know I’ll get it back.
Even if you get it back it probably will not be in 3-4 months. I loaned my brother 40K almost 2 years ago and it was supposed to be paid back in 6 months. Only seen 30K so far. I don’t want to ask since family means more for me than money.
A very important financial rule: thou shall not loan money to friends or family. Gifts are fine. Even this does work out, they’ll come back and ask for more money. And you don’t want to be viewed as a bank. Just my $0.02.
This. My brothers could pretty much ask me for as much cash as they need, but either I can afford it as a gift or I can't. They never ask. Occasionally I offer, since they're underemployed do-gooders. Never loan money unless there is a legal contract involved and there is no personal relationship to be ruined if you have to enforce the terms of the contract.
You can get a teaser 0% cash transfer from credit cards. It'll take about 3% to process.
Get a margin loan against your shares. But only do this if you have way more in your stock portfolio compared to the amount of the loan. This way you stay invested.
Also, if you write down the repayment plan with your brother and charge market interest rate, you can then deduct the interest of the margin loan against your income. If you don’t want to charge market interest rate to your brother, just gift it to him.
I have my RSU shares transferred to interactive brokers. Their margin rates are way lower than E*TRADE (Libor+0-1% depending on how much you borrow). Margin loan that and pay ~3% interest for the amount of time you need
NEVER loan money to family. Just don't do it. Especially not if you need it back.
This. Gift money to family. Or make it a loan with no expectations of payback. My dad loaned my uncle money for a down payment. He made it a mortgage loan (2nd mortgage) with low interest and no payment required but he'll get back his principal one day when the home is sold. That creates no tension with the uncle since there's no expectation that he pay anything until the house is sold. It meant my nephews grow up in a house instead of an apartment.
Notice that the interest you pay to yourself for 401k loan will be double taxed (you pay interest with after tax money and when you retire and withdrew they are taxed again).
Not if it's a Roth
Get a personal loan at 10% apr and charge it to your bro..
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I would take loan from 401k since you can contribute later in catchup contributions.
If you take loan from 401k, do you have to pay interest? If yes, who does the interest go to?
I think you just lose money.....