401 (k)-loan from ?

[Dale Watkins]

How much can participant borrow and for how long from plan without a penalty? Thank you.

[Gene V]

How much can participant borrow and for how long from plan without a penalty? Thank you.

I think each company has their own rules—however, it is usually 50% of your balance with a maximum of $50,000.

[Lion]

Typical would be five years, longer if purchasing a residence. But as has been stated, you need to read THAT plan to learn the details of borrowing from THAT plan.

[Gene V]

Another thought, try and get the highest interest rate possible, because the interest payment goes back into your account. (You’re paying yourself interest).

[FEDUKE404]

Seeing through the fog

Another thought, try and get the highest interest rate possible, because the interest payment goes back into your account. (You’re paying yourself interest).

Well....maybe....but I doubt it. (And it also prolongs replacing the borrowed principal.)

In reality, you also are NOT paying yourself anything (tax-free to boot) for the earnings/market appreciation of the assets that are no longer yours due to the amount of principal removed to give you the loan in the first place.

You are giving up tax-free income/appreciation for the convenience of paying a loan where the interest.....cannot be deducted either! (And sleep well at night with the understanding of what happens if you lose your job while the loan is outstanding!)

The "but you're paying yourself interest" is the oldest gimmick in the financial world, and many people willingly accept it hook/line/sinker.

Years ago I remember a marketing presentation (where the 401(k) aspect was fairly new to most employees) and the representative kept pushing the "pay yourself" mantra. It took three tries from me, but the rep finally acknowledged that if you borrowed $25k from your existing account you would lose any/all earnings from that $25k until such time as the funds were actually restored (loan was paid off) to their previous position. To add insult to injury, the DJIA was on a significant up-tick at the time...so much for coming out ahead by "paying yourself" in that environment! (The original, but now missing, $25k could easily have turned into ~$30k of assets within a couple of years.)

FE

[JohnH]

I've also never understood how the "you're paying yourself interest" argument gets so much traction. If that were true, then why stop with the 401(k)? Just loan yourself the money in your non-qualified savings account or money market account and charge yourself a high rate to pay it back.

A dollar removed from your assets to pay a liability you owe yourself is just moving the asset "cash" from one bucket into another. It's a basic law of physics - for every action there is an equal and opposite reaction.

[Gene V]

You guys are way up on this then I am—I guess I’m behind times-never seen any of those marketing presentation.—
I guess my thoughts are better to borrow from it—then take the money out prematurely and pay tax and penalty on it.