I borrowed $50k from my 401k to make a down payment. I was pleasantly surprised to see that both my principal AND interest are credited back to my Fidelity account. Other than a $50 processing fee, there was no other charge. All this while I reduced 50k*7% interest/year on my home loan. This is a no-brainer to me, why don’t more folks do that? What am I missing here? TC:$340k
I may be wrong but don’t you lose match or something until you repay the money you borrowed from your 401k?
Is this true? I front loaded for this year so no more match but will be a problem next year.
You dont lose anything, once money goes in, nobody can take it out. Read the Terms of loan/withdrawal carefully and evaluate carefully but for me it was worth the hassle, and I got at least 4 times return on investment compared to what I would have got leaving it to grow in 401K
Did same while buying my first home, easiest money if you can absorb the monthly. People just hype up the gain forgetting that taking money out of one investment to another investment is not a loss. Also, I dislike the fact that people lock away such a significant amount for retirement while they could actively use a part of it to make present better and ensurein future you dont need to touch that 401K. All the money just go back to your 401K, its like writing your own little loans.
Totally agree with all your points. I also had close to $200k in my 401k hoping to use in some distant future lol
100%. I did a loan for my first house as well. No regrets. A bit risky if you are not confident in your employer but otherwise it is great.
The reason to not take out money is you miss the equity growth. Which is the primary reason people invest in 401K. Right now with high mortgage rate and mediocre market, this looks attractive to you.
But if it’s to buy a house and live today (which is still an investment) isn’t that worth it?
You also begin building equity as the market grows so your not missing out. You just don’t see that “realized gain” that you’d see in your 401k.
I borrowed from 401k for down payment on my first house. It was a no brainer and provided some much needed liquidity since we weren’t seriously looking at the time. Paid it back over the following few months and all was good.
Same!
Why not slowly pay it over 15 yrs?
The interest you pay back on the loan is taxed twice i.e. you pay off the 401(k) loan using after-tax dollars, and you must pay income taxes again on the money when you take a distribution in retirement.
Better to pay 30% interest on "loan interest" rather than paying 100% of interest to the home mortgage bank.
Not true, the money you took out initially was tax free as well. So you are not paying tax twice
How much can you potentially borrow ? How long does it actually take to get the money in your account ?
You can borrow 50% upto 50k max. Fidelity is pretty fast had the funds in 2 days. Used it for my house downpayment. No regrets
I did the same thing. I see many Microsoft people have taken similar way, smart move! People saying "after tax repayment, double tax" recalculate!
Did it for home improvement
I did it too! Best decision. It was either selling Amazon stock at $90 or the 401k loan. I took the 401k. No regrets, my Amazon stock since has grown decently and I would have missed out on the gains. Also planning to repay the 401k loan by EOY to not miss out on the growth. People need to seriously start using 401k money. This makes sense now as mortgage rates are sky high. I can understand when the rates were 2-3% but now it’s a game changer
Can you not borrow cash from margin accounts?
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If you lose your job, the whole 401k loan is due with 30 days. You’re also paying it back using post-tax money.
Ya but 50k they took is also used as post-tax
this is not true at all! I left a job and didn’t have to repay. I was able to set up automatic withdrawals from checking account.