Clark Howard - Interesting 401(k) Loan Advice

[geekgirldany]

I am not a avid listener of Clark Howard but follow Dave Ramsey. His advice is to not take out a 401K loan under any circumstances unless it is to avoid foreclosure or bankruptcy.

I agree with the last two posts about folks living within their means. It use to be common sense but with people being able to get credit cards and mortgages so easily that went out the window for many.

[JohnH]

Yes, Dave Ramsey is great. He always tells it straight up.

Interesting that the following story should show up on the heels of the discussion we were having yesterday. I was surprised at the 26% figure.

http://finance.yahoo.com/loans/article/110512/a-15-year-mortgage-isnt-for-everyone?mod=loans-home

Personally I'm not enthusiastic about the 15-year mortgage unless the interest differential is significantly greater than .25%. It's easy enough to finance over 30 years and then make the payments as though the loan were based on a 15-year amortization. (On a $200K loan this only costs about $350/year after the tax deduction). One never knows what the future may hold, so preserving the option to drop back to the 30-year payment, if necessary, has some value.

[Davc]

I'm a little less impressed with Mr. Ramsey since I heard him tell a caller that asked about financing a business by forming a C Corp with his IRA owning the stock. Mr. Ramsey insisted that he should use a S-Corp. When I e-mailed him and explained why that wasn't possible I received no reply and never heard a retraction on the air,

[veritas]

Dave Ramsey

Does get crossed up sometimes on tax matters. But hey what the heck so does the head of the treasury dept. and the head of the tax writing committee.

Another thing he only recomends CPAs for taxes I believe.

[Roberts]

Yes, Dave Ramsey is great. He always tells it straight up.

Interesting that the following story should show up on the heels of the discussion we were having yesterday. I was surprised at the 26% figure.

http://finance.yahoo.com/loans/article/110512/a-15-year-mortgage-isnt-for-everyone?mod=loans-home

Personally I'm not enthusiastic about the 15-year mortgage unless the interest differential is significantly greater than .25%. It's easy enough to finance over 30 years and then make the payments as though the loan were based on a 15-year amortization. (On a $200K loan this only costs about $350/year after the tax deduction). One never knows what the future may hold, so preserving the option to drop back to the 30-year payment, if necessary, has some value.

What if someone who has been in their home for 10-15 years wants to refinance? Should they go back into another 30 year mortgage? Almost all my friends just did that. They brag about their lower payments and then ignore that they just put 10 years of payments back on their mortgage.

Being debt free is almost anti-American today. I've got clients that I tell them to go pay off the mortgage because the tax free rate is 4.3% (same as mortgages really) and there is risk involved in the muni bond - but you have zero risk if you pay off the debt. People just refuse to do it.

If you look at the finances of the average person, it isn't shocking to see why the finances in Washington are so screwed up.

[JohnH]

Honestly, even for someone 10-15 years into a 30-year loan, my advice would be the same. Unless there's more than a .25% interest differential, my course of action would be to refi on a 30-year amortization but then make the same payment I would be making on a 15-year amortization. Why lock yourself into a higher required payment when the net cost is so little for maintaining that flexibility?

Of course, if they don't have enough financial discipline to make the higher payment, then I guess they need to have the bank enforce it by doing the 15-year loan. If their finances change a few years down the road and they need the extra money later, they will just have to eat more transaction costs and step back up in rate to do what they could have done at the outset. And I guess anyone who does the refi and then brags about only making the lower payment without thinking through the long-term consequences would fall into this category. (They probably also buy permanent life insurance and think annuities are a good idea as well).

WIth interest rates being at historic lows, those who are able to average down should really be giving these issues some serious thought. Anyone who plans to live in their home for 3 or more years and is currently paying 6% or more is probably seeing a once-in-a-lifetime opportunity.

[geekgirldany]

Does get crossed up sometimes on tax matters. But hey what the heck so does the head of the treasury dept. and the head of the tax writing committee.

Another thing he only recomends CPAs for taxes I believe.

Yeah I've heard him give some bad tax advice. One time he tells someone to form a S-Corp... next week he is telling them there is no reason for a S-Corp. I heard him miss up on a OIC.

Guy called in saying that he went to one of Dave's Endorsed Local Providers about an OIC. Said the CPA told him he would have to send in 20% for a lump sum offer to be considered. Dave told him that the CPA was totally wrong and no money had to be sent in for OIC. He added that he would get the CPA information and talk him.

I also sent in an email explaining the OIC process. Nothing back.

Most of the time he says talk to you CPA first. He has started letting Enrolled Agents in his provider list but he doesn't refer to them as much.

[veritas]

Sorry

Along with Consumer Reports, I place him very high on the reliability scale. Probably the most unbiased voice on the air, IMO. He's saved me lots of money over the years, as well as some clients I've told about him.

My statement about Clark was somewhat harsh. He does help many people.

[SueBaby]

Trust is donating 20 acres of land to the school district to build a new school. The basis of the land at time of donation is $40,000.
Part of the agreement of this donation says the trust must make certain land improvements worth $2 million. The school is paying the trust this $2 mil and the trust pays the contractors.
My question is: The donation is $40,000 and the capital gain is $0, right? Trust received this money, but in turn paid it out for improvements.

The quote from Oscar Wilde is so true and funny; that is half of my clients!