I have $30,000 in debt and about $65,000 in my 401k.?

Question

I'm 31 years old and make about $105,000 a year. I'll be married within 12-16 months. Should I borrow from my 401k to pay off this mbna loan?

Answer 1

I'd say yes. You'll save, I think, in the long run with the interest & what-not. If you don't know, call a different bank. Ask them if you can talk to an investment counselor. They will work out all the numbers for you to see which is the best way for you to go.

Answer 2

I am a retirement plan consultant, and many people do not understand loans on 401k plans. I will lay out the facts and let you decide.

Pros:

First of all, you are borrowing money from yourself, and paying it back to yourself. The interest that you pay goes into your retirement plan. There may be some small recordkeeping fees that you will pay out of your retirement plan, but for the most part, the interest goes to you.

Pros: If you default on the loan, it does not affect your credit

Cons: You are paying it back with after tax money. This means, that when you take a distribution some day - hopefully at your retirement - you will be withdrawing the interest you paid yourself (that you already paid taxes on) and you will have to pay taxes on it again.

cons: If you terminate employment with your current employer, you have 60 days to pay off the full balance of the loan. If you don't pay it off in 60 days, the amount of the outstanding loan is taxable at your regular state and federal income tax rate, plus a 10% penalty. If you have 20,000 outstanding, you won't have to pay it back, but you will receive a 1099 calling it income for that year which will mean you owe a hefty approximately $8,000 federal tax bill given your tax bracket. OUCH! Since you probably already spent the loan, you probably don't have the cash to pay it back.

Con: You lose out on potential earnings. If your account goes up 8% a year, you are losing 8% on the 30,000 that would have been in your 401k if you had not taken a loan. On the contrary, if the market goes down 10%, well, you avoided losing $3,000 since the money is not in your plan!

Could be pro or con: The interest rate is set by your plan administrator. They have fiduciary responsibility to make it a competitive market rate, so most employers choose the current prime rate within a percent or two.

Now that you have the facts, you can make the decision that is best for you based on how you feel about the market, your job security or plans to continue working at your employer, and other interest rates that you could be approved for.

Good Luck!

Answer 3

You can do that to pay off the loan, but you should be aware that if you leave your employer, you will be required to pay it back, in full, to your 401k or it will be treated as a withdrawal with all the tax liability that creates.
Most financial advisers would probably tell you to leave your 401k alone, but if it is unsecured debt that you are paying a high interest rate on, and you plan to pay it back fairly quickly then it might make sense.

Answer 4

It makes no sense to pay penalties and taxes on money you were able to sock away for retirement just to pay a debt that you can pay off. Even with the best of intentions you won't get that money back nor will you get the compounded interest on it that will accumulate before you retire... leave it where it is. Set up a schedule to pay that $30k debts as quickly as you can by paying more than minimum payments if possible. You have a decent income. Concentrate on paying that debt and continue to pay that same amount (or more) into that retirement fund and you may just be able to retire in your fifties. Let your money work for you instead of the other way around.

Answer 5

I'd say no, if you're earning that much money you obviously need to make some lifestyle changes, reduce your expences, priorities a little, other wise you'll just end up getting in more debt and next time you wont have any money in your 401k to get you out of debt....

Answer 6

no, your retirement money should never be touched....if you make 105000 you should have no problem paying it off...if you do have a problem paying it off then maybe you need to change your life style ...it will do you more harm than good to take out of your 401k....it could be seen as extra income and your tax bracket will go up...also they will probably charge you withdraw fees....dont touch the 401
besides whats 30000 id debt anyway just pay it off

Answer 7

You could always do that and then just add more to you 401k . I am not a banker, or a loan officer so I'm not sure.

Answer 8

I guess the question is the interests in the loans. Can't you find something with better interest rates ?

Some credit cards will give your better interest rate for a short period of time. Use them to buy you some time and cut down on interests.

Answer 9

No, your 401k is for retirement and you should avoid borrowing money at all cost.

Answer 10

worlds topmost banks offering loans in low interest.you can get good benefit from this.visit
http://www.freewebs.com/***********