If 3 conditions exist it could.
I am actually doing the 10k penalty free thing. I found an investment property that is worth it even considering the mortgage rate. I see it as a better rate of return in the long run.
If you’re looking at a snap shot. Look at it over 5 years, 10 years, 20 years.might as well
your 401k right now
I just did 12 months. Granted i’m in a unique cash and income situation.
Hi - If I remember correctly from other posts you've done really well in life financially. Congrats on that! I'm trying to understand the payback and motive on what you did. You borrow $50k for a year. The interest rate on that loan is 7%. So you pay into your 401k roughly $53,500 after 12 months. During that time your funds are not invested into any options within the 401k so you are not getting any market or other performance. Am I wrong about that? Do your funds still remain invested? With the cash from the loan you go the a bank or other financial institution and get a CD rate. Let's say that rate is 5%. You would be paying taxes on that 5%, so tax affected you have about a 3.025% return. That means after a year you have roughly $51,625. You have to make up the difference in the loan so you add $1,875 (53.5 - 51.625) from other money you've made to cover the difference and repay the loan. You end up with $53,500 in your 401k, but have lost out on all chances to participate in market performance and you have to add the $1,875. Can you help connect the dots on why that is a good deal? I guess someone could say they are getting the CD rate, but you can get that type stuff within most funds anyways and not deal with all the movements....
Great question.
Could you take a look at this and tell me where I'm off in my thinking. As you look at it realize the 7% is not a real return. It's what you are paying yourself. The real return is the money that gets paid on the CD which would be taxed before you used it to pay off the loan. Returns are for the last 10 years on the DJIA. I think based on this you would be ahead around $30k after 10 years if you had it in the market instead of the CDs. Thoughts?
| YEAR | DJIA Return | DJIA Return | CD | Difference | |||||
2025 | -0.05 | -0.05% | (25.00) | 0.0325 | $ 1,625 | -3.30% | $ (1,650) | ||
2024 | 12.88 | 12.88% | 6,440.00 | 0.0325 | $ 1,625 | 9.63% | $ 4,815 | ||
2023 | 13.7 | 13.70% | 6,850.00 | 0.0325 | $ 1,625 | 10.45% | $ 5,225 | ||
2022 | -8.78 | -8.78% | (4,390.00) | 0.0325 | $ 1,625 | -12.03% | $ (6,015) | ||
2021 | 18.73 | 18.73% | 9,365.00 | 0.0325 | $ 1,625 | 15.48% | $ 7,740 | ||
2020 | 7.25 | 7.25% | 3,625.00 | 0.0325 | $ 1,625 | 4.00% | $ 2,000 | ||
2019 | 22.34 | 22.34% | 11,170.00 | 0.0325 | $ 1,625 | 19.09% | $ 9,545 | ||
2018 | -5.63 | -5.63% | (2,815.00) | 0.0325 | $ 1,625 | -8.88% | $ (4,440) | ||
2017 | 25.08 | 25.08% | 12,540.00 | 0.0325 | $ 1,625 | 21.83% | $ 10,915 | ||
2016 | 13.42 | 13.42% | 6,710.00 | 0.0325 | $ 1,625 | 10.17% | $ 5,085 | ||
2015 | -2.23 | -2.23% | (1,115.00) | 0.0325 | $ 1,625 | -5.48% | $ (2,740) | ||
| $ 30,480 |
Yeah, taking that money out might put you in a higher tax bracket as well as penalties. Arent there still penalties for early withdrawal as well as having to pay the taxes?
@DogBoyRy Could you take a look at this? IF there's a way to game the system similar to what you are doing I would love to understand it. Based on the math above I'm not so sure it pays off.
This was covered elsewhere, but no it wouldn't. Put your money into a safer option within the 401k.
I'm at a preinstall meeting and wrapping up another RFP. Might get back later today...
If it hurts your retirement savings or opens you up to buy the next “want” on credit it is very bad.
That’s assuming the interest rate you earned in the CD’s outpaced the earnings/yield you forego on any equities in your 401K? Over the last 3 or 4 years, any equity earnings/balances (which you took out of your 401K), would have far exceeded any CD yields.
Because people are stupid and would use it as a piggy bank then cry when they are in there 60’s and still have to work.
The IRS probably won't have enough personnel left to do a decent job of checking tax returns so the probability of getting auditing will be going down. Do you get my drift?
First, the market has responded well after bad years - certainly in the last few decades. So, if you are saying there is a 30% drop and it DOESN'T come back for some reason - I still don't think it's a good idea.
Okay. But how does putting that into a CD that will have taxable income make sense vs the non-taxed options within the plan?
Sorry for delayed response. End of work week was a bitch then 2 plane rides home ,then had golf and personal stuff. Your simulation looks correct, and your points are all valid.
You do realize you’re attempting to sow financial wisdom to a board full of trolls, bots, and what passes for leftist intelligentsia, right?
I have one small holding in a stock - using just that one as an example - that’s gone from about $23K to just over $30K since late January.
