Loan to Purchase Musclecar

[the427king]

If you have a 401K use the loan feature and pay yourself back the interest and you can do it at around 4% right now. best of both worlds. Can only boorrow 50K or half of your balance,which ever is lower ...

[YENKO DEUCE REGISTRY]

Originally Posted by the427king

If you have a 401K use the loan feature and pay yourself back the interest and you can do it at around 4% right now. best of both worlds. Can only boorrow 50K or half of your balance,which ever is lower ...

While this can be a tempting option, the long term consequences can add up.... To make this work you should ensure that the appreciation of the car you purchase + the 4% you pay back to yourself (I'm not sure if you actually get all of that, but....) is greater than the gain you forfeit from the 401k fund itself. Also, not all plan administrators allow for 401k loans, so check before assuming. Finally, since 401k contributions are made on a pre-tax basis, loans greater than $50k and/or not repaid within 5 years will trigger a tax impact - at your current income bracket rate!! So, make sure you think this one through very thoroughly.....


"401(k) Loan Repayment
The IRS will consider your 401(k) loan to be a reportable, taxable distribution unless you meet either of these conditions:

You repay the loan within five years.
You use the proceeds to buy or build your primary residence.

Even if you satisfy either of these two requirements, the IRS will treat your total loan balance that exceeds the lesser of $50,000 or half the value (but not less than $10,000) of your vested account balance as a taxable distribution. If you’ve already taken a loan, you’ll have to reduce the $50,000 ceiling to the extent of the highest outstanding loan balance during the one year period ending on the day before the new loan minus the outstanding balance on the date of the new loan."

[the427king]

And if you are under 59 1/2 you will also be subject to 10% penalty on top of your tax bracket on any balance considered a taxable distribution .........however, paying yourself 4% interest instead of a loan company 10 or 12% is a big big positive...your payments are a lot lower, you can make payments quarterly instead of monthly,and thats a 14 to 16 % swing that goes in your pocket