Taking out a 401k loan

[huey1124]

Originally posted by: Skoorb

well, i'm far from rich by any means, but my job pays enough for me to pay bills and put some money away each month. she did say she doesn't care about the size of the ring, but i know that's not how the girls REALLY feel. i have a lot of female friends as well, and i've learned a lot about how girls think over the years. to make matters worse, my sister was married about 3 years ago, and her husband proposed with a $75,000 ring. no joke, well that's how much they insured it for anyways. so i have this pride thing as well, especially since my gf knows how nice of a ring my sister got. her husband is much better off than i am, and he made millions from the stock boom, but still i can't give my gf something that is so much smaller. oh well.....

Cost of ring has no correlation to the success of the marriage of love of the couple. Some women (frankly the insecure ones) think that a guy has to spend a lot of money on a ring. I bought Mrsskoorb's one with cash (about 10% the amount you want to spend). I can think of fewer bad financial moves than taking out a loan (401k or other) for an engagement ring.

That money can be much better used. We've got some friends with rings bigger than mrsskoorb's but I know they are worse off money wise, so instead of a beacon of their wealth it serves as a beacon of their financial weakness and nothing more. I know for a fact that she likes the rings she has and would never have wanted me spending more. You cannot compete with your sister's hubby because you do not have $75k to spend, so don't even bother. It's a fight you cannot win, and a fight not worth winning even if you could.

that was a very nice response. i do want to point out that i don't NEED to take out a 401k loan, or any other bank loan, to pay for this ring. i just didn't want to deplete my savings too much. but you're all right, it wouldn't make much financial sense to borrow from 401k. and i will rethink about the budget for the ring. thanks.

 

[chowderhead]

Originally posted by: huey1124
i have a question about taking out a 401k loan. let's say you have $10000 in balance, and you want to take out a loan for $4000. i understand that the repayment for $4000 loan is deducted from your paycheck AFTER tax, plus around 7% interest. and in the event you lose your job or get fired, unless the outstanding balance can be paid back within few weeks, the said amount is deducted from the 401k balance and treated as an early withdrawl (taxed AND penalized).

so my question is, is the new balance of your 401k $6000 after you take out the loan (since you borrowed $4000), or is the balance still $10000 but you're repaying against a virtual loan? i guess the difference would be, in a recovering economy like this, a person won't be able to buy as many shares of mutual funds now that the price per share has risen, affecting the total of retirement fund. also, if the person is maxing out his/her 401k now, can he/she continue to max out by contributing the same amount per paycheck in addition to the repayment? (although repayment is AFTER tax and the $12500 limit set by Bush administration refers to BEFORE tax contribution)

if someone can answer these, i would appreciate it! thanks in advance.

I would not take a loan against the 401k money. It gets taxed when you take it out the first time (after tax money to repay) and it will get taxed again when you retire and draw from it. You are volunteering to get taxed twice. If you really want the ring ... look for another option to pay for it.