A rather stupid question...

[SSSnail]

Let's say if I have some debts to which I need to get rid off, should I take out a loan from my 401K and pay off the debts? If I take out the loan from 401K, I will pay it back monthly + interest (which I owe myself). If I pay the debt monthly, I'll be paying interest as well, even at a higher percentage.

I already know the answer to this, just want some confirmations.

Edit: Grrrrrr... please move to Off Topic.

 

[Lemon law]

To SSSnail,

Taking out a loan to pay debts may make sense---but its really stupid to fund the loan out of your 401-k.
Its unbelievable how greedy uncle sam will get---and on top of taxing you---they will hit you with all kinds of penalities----but you can explore that option with a company like H&R Block for free--as they have friendly reps at local offices who will answer such general questions.

 

[SSSnail]

Originally posted by: Lemon law
To SSSnail,

Taking out a loan to pay debts may make sense---but its really stupid to fund the loan out of your 401-k.
Its unbelievable how greedy uncle sam will get---and on top of taxing you---they will hit you with all kinds of penalities----but you can explore that option with a company like H&R Block for free--as they have friendly reps at local offices who will answer such general questions.

Actually, it's not as stupid as it looks. For one, I will not be paying any penalties or tax liabilities, because this is a loan, not a withdrawal. Secondly, I will be paying back to myself, with interests. The deduction do come from after tax income, but the payment and interests go right back into my 401K.

 

[SSSnail]

Any professional opinions?

 

[MedicBob]

You end up being double taxed if you get a loan from your 401k. The money you use to repay is after taxes and then when you draw it out you get taxed. I would rather try to find another way to pay that stuff off.

 

[SSSnail]

Originally posted by: MedicBob
You end up being double taxed if you get a loan from your 401k. The money you use to repay is after taxes and then when you draw it out you get taxed. I would rather try to find another way to pay that stuff off.

Yes, thats true; however, the debts incure interests. I'm just trying to rationalize before I pull the trigger. I've thought of alternatives, seems to me this is most viable unless I sell some stocks (not optimal timing and after taxes and fees... yuck).

 

[akshatp]

Originally posted by: SSSnail

Originally posted by: MedicBob
You end up being double taxed if you get a loan from your 401k. The money you use to repay is after taxes and then when you draw it out you get taxed. I would rather try to find another way to pay that stuff off.

Yes, thats true; however, the debts incure interests. I'm just trying to rationalize before I pull the trigger. I've thought of alternatives, seems to me this is most viable unless I sell some stocks (not optimal timing and after taxes and fees... yuck).

Incure?

 

[SSSnail]

Originally posted by: akshatp
Incure?

you know what I mean

 

[her209]

Interest rates for said 401k loans are usually higher.

 

[SSSnail]

Originally posted by: her209
Interest rates for said 401k loans are usually higher.

Mine charges 9.9% and it goes back into my 401K. Basically, I borrow from myself, the debtor and debtee ; the only fees I have to pay is a $100.00 loan setup fee.