Why Suze Orman is WRONG about 401k loans.. (payments, credit, dollars) - Personal Finance -debt, loans, credit cards, banks, insurance... - Page 2 - City-Data Forum

dingbat007 · 11-13-2012, 05:57 PM

Wouldn't it be awesome if you could pay back a 401k loan with pretax dollars? I would take out a 50K loan at the beginning of the year. Stick in the bank and pay my expenses throughout the year with it because most of my check would be paying off the loan. So if I make $70,000 a year minus 401k CONTRIBUTIONS of 10,000 my health insurance of 5,000 minus the 50k loan paid pretax. That leaves me with $5,000 in taxable income. Then I would get a mad hookerish tax return without paying in a single dime. I say we put Suze in charge of the tax code.

mathjak107 · 11-13-2012, 06:14 PM

Yeah that way we get to keep the origonal contribution we made tax free by just taking it out.

Ill bet dear suzie will never mention the taxes not being any higher bit at all in her 401k loan segmants.

dingbat007 · 11-13-2012, 06:57 PM

Normally I love Suze, but I think she really believes there is some type of double tax penalty. Did you see she said there is no way to keep seperate the money that has now been taxed from the money that has never been taxed? Roth?

dingbat007 · 11-13-2012, 08:52 PM

http://www.federalreserve.gov/pubs/f.../200842pap.pdf
My plan to lead a rebellion against the unfairness of double taxation of these 401k loans will be thwarted by the feds. Go to section 3.2. It is cleary explained. Including the part about the interest being double taxed.

mathjak107 · 11-14-2012, 02:22 AM

Quote:

Originally Posted by dingbat007

Normally I love Suze, but I think she really believes there is some type of double tax penalty. Did you see she said there is no way to keep seperate the money that has now been taxed from the money that has never been taxed? Roth?

nah ,she knows better. she realizes what she is saying and that the money taken for the loan really is money thats taxed 2x.

what she wont mention is the fact its really a wash tax wise and you wont pay a penny more in taxes because you took the loan..

that way what she says is true and it just may scare her typical audience of financially ill people from hurting themselves if she leaves out the rest of the details..

i once took a 401k loan myself and in the 2nd year of the loan my company went out of business and the loan became due in full .

luckily i had the cash to pay it back.

others got screwed too. one guy used a 401k loan to buy a new car since it was a better rate then the auto loans at the time.

when we went out of business not only did he have to come up with the money to pay it back or face taxes and penaltys but he had to re-finance with a high rate used car loan since he couldnt get a new car loan on it.

i can see why she discourages borrowing against it and if that involves holding back some details and stretching the truth then i guess its okay.

we know better though...

by the way a roth is taxed. its taxed going in instead of taxed going out but taxed it is.

HappyTexan · 11-14-2012, 07:17 AM

IMHO they laxed the rules for borrowing against your 401K and encouraged it.
Borrow your retirement money and pay it back over time.
Now that money you borrowed is not making more money for you.

Can you borrow against your company pension ?
Can you borrow against your SS ?
But you an borrow against your 401K.

With the 401K, the only one losing out if anything goes wrong is you.

Whenever I see a post asking about borrowing against their 401K to do X, my reply is :
That 401K does not exist. Forget about it and find another way.
If you have to borrow against your 401K that indicates you do not have enough money to do what you want to do.
That alone should be your red flag if you contemplate borrowing against your retirement money because only you can be the loser here if it doesn't work out.

dingbat007 · 11-15-2012, 07:47 PM

I agree that loans are a bad idea. You say "always" and I say "usually". It is just bizarre that someone who gives financial advise is that backasswards on taxation.

mathjak107 · 11-16-2012, 01:53 AM

like i said she knows what she is saying. she only phrases it that way to discourage her tv audience of financial mis-fits from hurting themselves.

MaseMan · 11-16-2012, 06:16 AM

Yeah...she may be technically wrong, but taking out a loan against your 401K is still a terrible idea.

bradykp · 11-16-2012, 08:14 AM

Quote:

Originally Posted by mathjak107

Yeah that way we get to keep the origonal contribution we made tax free by just taking it out.

Ill bet dear suzie will never mention the taxes not being any higher bit at all in her 401k loan segmants.

but since you paid the interest to yourself, rather than to a bank...you're still better off right?