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paying back the loan amount is no different than taking a 401k loan and going I no longer need the money so I am putting it back. you are just replacing money that you took out that was never taxed.
if you picture you have two pockets ,you can keep the never taxed money you pulled out in one of the pockets and leave it there and instead pay it back from your after tax income in the other pocket.
either way you pay no more in tax than if you didn't take a loan.
at no point will you pay 1 penny more in tax except perhaps on some interest.
This is were susie word plays. Technically you will pay tax on the money when you pull it out in retirement as well as pay the loan back with after tax dollars.
However the part she leaves off on purpose is the fact you pulled out and spent the same amount in untaxed money.
That offsets the double taxed money on the loan.
At no point do you pay a penny more in taxes but semantically she can say your loan is taxed 2x.
The fact is if it keeps one of her listening audiance from pulling out and blowing their retirement money than once again her misinformation prevented someone from hurting themselves.
That is what i meant by much of her advice is not accurate but if you follow it the effect can be benign.
Regarding the people that call in and divulge their finances,does it seem like they are above average and showing off or is it that the average American? Because I certainly don't make that much...
Absolutely, I noticed this very early in watching her show. The crap you see, hear and read in the media is driven by ratings, which in turn are driven by demographics, and specifically by people with money to spend/invest.
Ratings are NOT democratic or populist; 1 million viewers/listeners with an average income of $100K are usually worth more than 10 million listeners with an average income of $20K. There are a few exceptions; lotteries, tobacco, alcohol, and Hollywood come to mind.
Suze wants a $100K audience, and people making $20K are irrelevant to her show.
those making 20k would just bore the crap out of everyone. you need discretionary income to get into trouble for the most part.
in fact the worse shape you are in the better the audiance likes it. people love to watch others have financial misery, then it makes their own situation not so bad.
all her books and seminars are designed around getting out of financial trouble.
when was the last time you saw a succesful couple featured on the show other than can i afford it?hmmmm i can't remember any.
with 70% of americans in debt she knows who to market to and the worse of a failure you are the better suited for her show you are..
Last edited by mathjak107; 09-10-2013 at 02:45 AM..
This is were susie word plays. Technically you will pay tax on the money when you pull it out in retirement as well as pay the loan back with after tax dollars.
However the part she leaves off on purpose is the fact you pulled out and spent the same amount in untaxed money.
That offsets the double taxed money on the loan.
At no point do you pay a penny more in taxes but semantically she can say your loan is taxed 2x.
The fact is if it keeps one of her listening audiance from pulling out and blowing their retirement money than once again her misinformation prevented someone from hurting themselves.
That is what i meant by much of her advice is not accurate but if you follow it the effect can be benign.
I guess the assumption about the double taxed money is... that you pay taxes upfront on the amount of the loan, e.g. a $10,000 loan with a 25% income tax rate, you would take out the $10,000 from the 401k, owe $2500 in tax, leaving you with $7500 cash, but your original loan balance is $10,000 so you have to pay $10,000 including interest back to your 401k, even though you only really got $7500 after taxes were paid. Then when making retirement withdrawals, you get a $10,000 distribution that gets taxed again assuming 25% and you only get $7500.
This scenario is how I thought it worked; always wondered why people said it was such a useful tool.
those making 20k would just bore the crap out of everyone. you need discretionary income to get into trouble for the most part.
in fact the worse shape you are in the better the audiance likes it. people love to watch others have financial misery, then it makes their own situation not so bad.
all her books and seminars are designed around getting out of financial trouble.
when was the last time you saw a succesful couple featured on the show other than can i afford it?hmmmm i can't remember any.
with 70% of americans in debt she knows who to market to and the worse of a failure you are the better suited for her show you are..
Well she COULD occasionally fit a $20K caller into the Can I Afford It segment: DENIED!!! Some people would find that entertaining.
I guess the assumption about the double taxed money is... that you pay taxes upfront on the amount of the loan, e.g. a $10,000 loan with a 25% income tax rate, you would take out the $10,000 from the 401k, owe $2500 in tax, leaving you with $7500 cash, but your original loan balance is $10,000 so you have to pay $10,000 including interest back to your 401k, even though you only really got $7500 after taxes were paid. Then when making retirement withdrawals, you get a $10,000 distribution that gets taxed again assuming 25% and you only get $7500.
This scenario is how I thought it worked; always wondered why people said it was such a useful tool.
No, you are not taxed $2,500 up front when you take out the loan. The loan itself is not a taxable event.
As mathjak stated, the idea of "double taxation" is a semantic one since although you are repaying the loan with "after-tax" money, that is offset by the fact that you are buying whatever it is you need that big chunk of change for with pre-tax money. So it's a wash on that end.
No, you are not taxed $2,500 up front when you take out the loan. The loan itself is not a taxable event.
As mathjak stated, the idea of "double taxation" is a semantic one since although you are repaying the loan with "after-tax" money, that is offset by the fact that you are buying whatever it is you need that big chunk of change for with pre-tax money. So it's a wash on that end.
So taking a loan is not treated the same as taking a distribution. Got it now.
Honestly... I don't think Susan Orman's intention to distort the real truth is really that bad, given her target audience. She has good intentions; the more deterrents to borrowing against a retirement account the less abuse it would get. At least, I have seen someone using their 401k as easy money and consequently, has almost nothing left in it.
Last edited by arrieros81; 09-10-2013 at 01:55 PM..
She recently changed her advice about 10% vs. 20% down payments on homes. As long as someone has an 8-month emergency fund (which I tend to think is high), she says they can now put down 10% instead of 20%. I wonder what changed her mind.
On another note, I can't stand when she launches into telling someone to divorce their spouse on the basis of a one-sided telephone call. Stay in your lane, lady.
She recently changed her advice about 10% vs. 20% down payments on homes. As long as someone has an 8-month emergency fund (which I tend to think is high), she says they can now put down 10% instead of 20%. I wonder what changed her mind.
Perhaps she sees that the real estate market isn't improving fast enough so she's trying to make it more feasible for people to still get homes.
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