If the next financial disaster is just around the corner...

[PistolBob]

We've been thinking about borrowing enough out of my 401K to pay off the house. No matter what happens we'll need a place to live, and we can't afford to rent. My 401K contirbutions would instead just go to the loan balance and I'd make about 4% on it. Then when I lose my job due to the bad economy I have a paid for house, and a tax bill that I can spread out over the next few years....I'll be 59 annd a half soon so I might be able to escape the 10% penalty phase.

Just something to noodle.

 

[sloughfoot]

Sure, why not? As for me, i am going to invest in an oil well. Afterward I will live like Jeb Clampett.

Seriously, the world I grew up in doesn't make any sense any more. I don't know what to do. The world is upside down and I don't know what to do. My money is in mutual funds that can go to zero balance at any time.

My best to you PistolBob. I hope you do well. I hope you survive what is coming. if you stop by, hopefully I will have a little chicken soup on the stove that I can give to you as you pass by.

 

[rockhopper46038]

Hard to say PistolBob. Generally, borrowing from a 401(k) is a bad idea. But as you have obviously discovered, in some limited cases it can be good idea. I've used 401(k) loans myself to leverage investments in things that I thought had a better potential return, or as a way to get money out of the market that I thought was at risk. And I've used it as a way (through the credited interest) to get more into my tax advantaged accounts than would otherwise normally be permitted.

I agree with sloughfoot that the financial markets don't seem to make sense anymore, or at least not in the ways that used to make sense to me. I see little reason for upside in the market and all sorts of reasons for downside; but I would have said the same thing 12 months ago, and if you had taken your 401(k) money out of the market at this time last year you would have missed out on one of the best opportunities to increase your wealth that we may see in a generation. Money continues to pour into our market here in the States primarily because we are the best looking dog in a pack of mangy mutts.

I can't tell you if it is a good idea or a bad idea. In Indiana, even after paying off your mortgage you are still subject to local property taxes, so the idea of "owning" your house is a bit of a pipe dream. If your house's value were to decrease, any money you have put into paying off the mortgage will essentially vaporize with the loss in value. Securities are probably more volatile, but they are also a lot more liquid. You could get out of an investment that is falling in value a lot more quickly than you might be able to get out of a house falling in value. I guess it comes down to whether you are looking more toward wealth preservation at this point, or wealth building.

If I had my nut completely covered at this point and was only interested in preserving my capital (or spending power), I'd probably look into buying some liquid currency baskets from a variety of the world's economies and play the exchange rate game. Good luck with whatever you decide, though.

 

[dmarsh8]

We've been thinking about borrowing enough out of my 401K to pay off the house. No matter what happens we'll need a place to live, and we can't afford to rent. My 401K contirbutions would instead just go to the loan balance and I'd make about 4% on it. Then when I lose my job due to the bad economy I have a paid for house, and a tax bill that I can spread out over the next few years....I'll be 59 annd a half soon so I might be able to escape the 10% penalty phase.

Just something to noodle.

I'm no expert but I'd say go for it! Especially if you are that close to missing the penalty.
Also, like you said, it would still be gaining some if things don't plummet.
Being debt free is your best friend (That's my #1 goal this year.) and last time I
checked you can't live in a 401k. Obviously you won't be technically debt free,but you'll
still be living in your home not with someone else.
The stock market is at an all time false high and it will soon end up in one direction
and you already know what that is.
Act, don't RE-ACT. I heard a lot of people that had to cash out or get loans from 401k etc
last crash that would have been much better off not owing the bank on their house.
I'm sure many out there would say no, but I just don't trust "FUNDS". Unless you are
knowledgeable in trading, the stocks are like Vegas to me, the house always wins.

 

[Cpt Caveman]

"The borrower is servant to the lender"

Pay off your house. Debt free is the way to be.
And its Jed Clampett if I'm not mistaken.
As far as how the markets are and things being upside down, you are right! The markets continue to go up even when the economy is actually tanking. The fed continues pumping money into it to keep it propped up. Eventually the wheels will fall off and the whole mess will erupt in a fireball of economic death with real death right behind it. You can't start preparing too early but you can be too late. Get off that train before they drive it off the cliff.
Avoid the rush panic now!

 

[Classic]

We are making all sacrifices necessary and going for "debt free". After that we will diversify any savings into numerous assets so if any one or more take a nosedive, hopefully we will still be able to stay warm and dry.

 

[88GT]

I can't tell you if it is a good idea or a bad idea. In Indiana, even after paying off your mortgage you are still subject to local property taxes, so the idea of "owning" your house is a bit of a pipe dream. If your house's value were to decrease, any money you have put into paying off the mortgage will essentially vaporize with the loss in value. Securities are probably more volatile, but they are also a lot more liquid. You could get out of an investment that is falling in value a lot more quickly than you might be able to get out of a house falling in value. I guess it comes down to whether you are looking more toward wealth preservation at this point, or wealth building.

This doesn't make sense to me. OP owes $X on the home. He's going to be paying the full loan amount back regardless of the home's value.

Now, if the dollar falls, it would be better to pay off a fixed rate loan with the less valuable dollars, but one can't count on that.

I'm no expert but I'd say go for it! Especially if you are that close to missing the penalty.
Also, like you said, it would still be gaining some if things don't plummet.
Being debt free is your best friend (That's my #1 goal this year.) and last time I
checked you can't live in a 401k. Obviously you won't be technically debt free,but you'll
still be living in your home not with someone else.
The stock market is at an all time false high and it will soon end up in one direction
and you already know what that is.
Act, don't RE-ACT. I heard a lot of people that had to cash out or get loans from 401k etc
last crash that would have been much better off not owing the bank on their house.
I'm sure many out there would say no, but I just don't trust "FUNDS". Unless you are
knowledgeable in trading, the stocks are like Vegas to me, the house always wins.

There is always benefit in paying off a loan early. The savings in interest alone puts him ahead no matter what else happens.

OP, if you're comfortable with the costs of using 401k funds, then do it. Out of curiosity, how many more years do you have on the mortgage note?

 

[calum]

We are making all sacrifices necessary and going for "debt free". After that we will diversify any savings into numerous assets so if any one or more take a nosedive, hopefully we will still be able to stay warm and dry.

+1 to this. Eliminate debt and diversify. And most importantly, live within means.

 

[6mm Shoot]

I go with paying off the house. That is what I did. It is nice to not have a house payment. It is even nicer to know that some bank can't take it away from me if things really go south. As far as paying the taxes on it that shouldn't be that hard. Any way not as hard as making payments and paying taxes.

 

[dirtfarmerz]

I got rid of my 401 twelve years ago. Trying to have no debt. I have been telling everyone to pay off their homes by giving up their savings. You will last a little longer than people with debt when they allow the economic crisis to hit. The 401's and saving accounts will be gone. The NWO folks don't want us to own anything so it will be just a matter of time before they come for what you have. They will come for what we have, especially the farms. That's just the way they believe. Check out Obama's National Defense Resources Preparedness Order that he signed March 16th of last year. That will be the start of it.

An economic crisis is coming, it is just a matter of when. They are prepping more than we are. The "reset" will not go our way.

 

[Whitsettd8]

The financial advisers here at work always frown on pulling money out but I'm pretty sure it's just cause you're taking money out of their wallet as well. I think the only time you shouldn't pull money from your 401k is if you have cash. If you are borrowing it's a no brainer to pay yourself back 4-5% as opposed to a lender. I plan on doing a 30k 5 year loan to pay down my mortgage as soon as my truck is paid off. I might be earning minimal interest on that 30k but looking at the amortization table just turns my stomach at the amount of money the bank makes off me.

 

[Enkrypter]

What does any of this matter when marshal law and eminent domain can be enacted with equal impunity?

 

[88GT]

What does any of this matter when marshal law and eminent domain can be enacted with equal impunity?

I hate to be that girl here, but it's martial.

 

[Dorky_D]

Hey, I saw this. I am not sure it is detailed enough for me, but it might be worth checking out.
SurvivalBlog.com: Search Results

 

[BehindBlueI's]

The financial advisers here at work always frown on pulling money out but I'm pretty sure it's just cause you're taking money out of their wallet as well. I think the only time you shouldn't pull money from your 401k is if you have cash. If you are borrowing it's a no brainer to pay yourself back 4-5% as opposed to a lender. I plan on doing a 30k 5 year loan to pay down my mortgage as soon as my truck is paid off. I might be earning minimal interest on that 30k but looking at the amortization table just turns my stomach at the amount of money the bank makes off me.

Yet if the stock market makes 7% a year on average on that time, that's what you just lost. With the tax benefits, you'd have to be paying, what, about 9.5% interest on a mortgage for that trade off to make sense? Yes, you are paying yourself back, but the opportunity cost is that cash is out of the marketplace. Mortgage debt is the cheapest debt you're likely to have given that its tax deductible and generally low compared to personal and consumer loans.

Your financial advisers at work are highly unlikely to be on any sort of commission. They are working on the knowledge of opportunity cost and how few people succeed in paying back their 401k without taking some sort of tax hit.

OP - consult a financial advisor. Its money well spent. Everyone's situation is somewhat different. If you lose your job, you can always pull what you need then. Being house rich and cash poor when you're out of work just means you're going to have to borrow from other (likely more expensive) sources, like credit cards. No one is going to lend you money when you are unemployed. How much emergency savings do you have? How long can you pay the heat bill, eat, put gas in the car for errands and to look for work, etc?

 

[88GT]

OP - consult a financial advisor. Its money well spent. Everyone's situation is somewhat different. If you lose your job, you can always pull what you need then.

If he loses his job, he might not have to pull any if he doesn't have a monthly mortgage payment to make.

Being house rich and cash poor when you're out of work just means you're going to have to borrow from other (likely more expensive) sources, like credit cards. No one is going to lend you money when you are unemployed. How much emergency savings do you have? How long can you pay the heat bill, eat, put gas in the car for errands and to look for work, etc?

It will be easier to pay all those things and build savings by not having to put $600 (and I'm being conservative with this figure) or more every month toward a mortgage payment.

I am no Ramsey fan, but in this he is absolutely spot on: Better to pay yourself than the creditor.

 

[jumpjet]

Taking funds from a 401k to pay off your mortgage is usually a very bad idea unless it is needed for a legitimate hardship (like medical expenses). The math very rarely works in your favor to do that. Plus if you quit working the loan must be paid back right away, like within 60 days. If you can't repay the loan, it is considered defaulted, and you will be taxed on the outstanding balance, including an early withdrawal penalty if you are not at least age 59 ½. Whatever your outstanding loan balance is at termination will be ordinary income to you which could result in a higher tax bracket on those funds. I'm not sure how much your mortgage balance is, but it is pretty standard that you cannot take a 401k loan for more than 50% of your balance, with a max loan of $50,000. There are also annoying 401k loan fees you'll have to pay. You need to check with your HR department on that.

Aside from those things, what are you going to do for retirement income if you get rid of your 401k?

 

[katfishinking]

I have pulled my 401k money to buy a house. with the market at an all time high right now, it just seemed like the right thing to do. I have rented all my life, and the thought of no payment, is exciting. as for what to live on when I retire? I don't think that will ever be possible. with things like they are today, retirement is a pipe dream. I am 52, and have worked all my life. but to actually retire, like my parents and grandparents did, I just don't see it happening. I should have stayed in the Air Force and retired in 2000. oh well, woulda, coulda, shoulda.

 

[PistolBob]

I owe less than 50K on my house, the market is heading for the shister, the interest rate on that 401K loan is 4% and it is paid to me. So I might as well borrow the full 50K out, pay off the house put the rest in a sock under my bed and hope my job lasts another 5 years. I have no faith in the stock market, there are so many thieves and crooks in it there is no way in hell it's not going to all go bust. Bank of America made 4 billion in profit, paid no taxes and got a federal money bailout when they cheated all the mortgage insurance companies. It's rigged fellas...and if you think you can beat them then I suggest you take your happy asses to the Bigfoot and invest heavily in Powerball. Get your cash now while it is still there...I doubt it will be there in another couple years.

 

[FreeLand]

PistolBob, I'm uncomfortable with your plan. I'm not a financial advisor, but I do have my own small (very small) business. I would rather borrow $10,000 for a piece of equipment AND have $10,000 in the bank than pay cash for the equipment and have $0 in the bank. Because if I have $0 in the bank, then I have nothing to cover the my ongoing expenses if my income falls off. If you're worried about a market crash, then change what you are invested in within your 401K. (ie get out of stock funds and move your money into bond funds. Or if you're in bonds funds and you don't like being there, move into a cash account.)

I think it would be wise to talk to a real financial planner before pulling money out of your 401K. There are some financial planners who work on a fee basis rather than on comission. Find one of those and let him/her walk you through the different scenarios. If you're near Indpls. and would like the name of the guy I use, PM me and I'll give you his contact info.