Question by SevenGirl: Should we get a secured loan against his 401k? My husband wants to get a secured loan against his 401k to pay off some debt. Is that a good idea? We have about $ 40k in credit card debt and about $ 90k left on our house. Wouldn't getting another loan to pay off other loans a bad idea? Let me know something y'all. Thanks in advance. I'm sorry, let me add more detail to this. My husband already took a cash withdrawal from his 401k and put that money into our savings so I guess what I'm trying to ask is if it would be a good idea to get secured loan against that amount of money. I just hate taking loans. I really think we can pay off our debt with our monthly income from our jobs. Best answer for Should we get a secured loan against his 401k?:
Answer by v b
You can only borrow 401K money through the 401K. I believe the plans limit you to what you can borrow for. If can't use the money as collateral on a loan outside the plan. If you lose your job, the entire balance must be repaid immediately or it counts as a distribution.
Answer by golferwhoworks
the cards sure but not the house unless it is adjustable. I would look at the equity in my home first to do the cards if you can since you can at least take the interest to the IRS form 1040 and leave the 401k alone. Now think of this if you are paying say $ 600 in CC debt monthly and get a new loan at even @100 more than current mtg then by spending what you are now and applying the $ 500 to the mtg monthly you will pay off even sooner than you could believe I am a mortgage banker in TN & KY
Answer by Mr_Blue
Don't do it. Borrowing against 401K is not a good idea. You can try to use the equity in your home. At least the interest on home equity loan is tax deductible. If you get any loan you need to stop using the credit cards because you will never get out the whole. Good luck.
Answer by Born 2 shop
Your 401 is your retirement....bad idea...period. I wouldnt do it. And you are penalized for doing so. Talk to your tax adviser or local banker before going ahead and doing this, just to be on the safe side. What about a home equity loan to pay off credit debt....do you have equity in your home? You are always gonna have a debt house,car,credit card, etc. why take from your tax free money to do that. I wouldnt suggest taking money from your 401k but if you do decide to Please dont take Yahoo Answers as your consultant Go do your research before your final decision. If you dont have a local banker or a a tax adviser just go to any or call any banker,tax adviser etc. Good Luck
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Many Americans have taken to borrowing from their 401K plans and other retirement plan accounts to survive in this current economic climate. According to Fidelity (a top provider of workplace retirement plans) approximately 15% of 401K participants took loans from their accounts and 22% of those participants have loans outstanding carrying an average balance of $ 8,650.00.
Now, borrowing from your 401K (Retirement Plan) may seem like a sound idea (many have no choice) and it can be. Unfortunately, what most fail to understand is how to deploy those funds correctly. Several years ago after repeated blows to the head (figuratively), I finally understood what my business coach had tried so desperately to engrain into my “old school†noggin: Live on a little less and re-invest the rest; maximize your money by increasing the velocity at which it grows.
LIGHT BULB!Even with a traditional 401K (as opposed to a Roth or Self-Directed which I learned about soon after) it is possible to generate a favorable return, despite the fees, penalties, and taxes. Real Estate was the key for me. By now the world knows (consider the throngs of foreign investors “buying up†the U.S. for pennies on the dollar) there has never been a better time to capitalize on the U.S. housing market. Using proven strategies that have stood the test of time, you do not have to settle for simply surviving. Granted it is imperative you surround or align yourself with those that have the knowledge, expertise and systems in place to guide you and mitigate the risk. Deployed properly, in most cases you will experience significant returns, dwarfing those of standard investment vehicles such as CDs and other Retirement Plans relying on the stock market for instance.
Prior to borrowing from your 401K consider other sources of cash or ways to cut expenses.
If you have a whole life insurance policy you can borrow up to the full cash value and you won’t have to repay it. You can withdraw contributions from your Roth IRA tax free and penalty free under certain circumstances (check with your financial/tax advisor); or take that Roth and convert it to a self-directed version for ultimate check book control. In the event you must borrow from your 401K here are a few things to be aware of: You will have to pay the loan back in 5 years, except for home purchases which are eligible for a longer period. Most employers deduct loan repayments from your paycheck! You will have to pay interest, usually prime plus 1 or 2 points. The interest you pay does go back into your account; however, it may not be “free†though. If your fund is earning 8% as an example and you borrowed at 6% you lose points and the future compounding interest on the lost points. Default won’t hurt your credit score, but you will owe income taxes, plus 10% early withdrawal penalty (if you are less than 59 and a half years old and still working). If you quit, or lose your job, you will have to pay it back typically within in 60 days. If not the money will be treated as a distribution, subject to federal and state taxes and 10% penalty if you are less than 55 years of age. More Borrowing From Your 401K Articles
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