Meager Income

Pay Off Debt, Retire Comfortably on Meager Income, Win the Lottery, Not Necessarily in that Order

401k Loan

Posted on | February 7, 2014 | No Comments

I was forecasting my expenses and realized that I was going to be short on cash this month and I needed to make sure to contribute to my Roth for 2013 before April 15th. I did have the option of selling some stock but I did not want to incur capital gains taxes from doing so and then forgo the dividends I’m receiving from those equities. Instead, I decided to borrow from my 401k.

I’ve read many opinions from pundits stating that this is a bad thing to do. In general, I agree. However, I decided that I would do it anyway.

I believe that the stock market is priced to high right now so I’ve switched the majority of the funds in my 401k to a stable fund that pays interest income on a monthly basis. So by taking out a loan I was not going to be missing out on appreciation or potential dividends. Maybe the stock market will go down and then I’ll be glad that I didn’t have the money invested.

The loan I’m taking out will have a small quarterly fee. I’ll be paying it back over two years and the interest rate is at 4.25%.

Also, half of the $10,000 loan I receive I’ll use to fund my Roth IRA contribution for 2013. The rest I’ll use to pay-off a credit card so that I’m not paying 20% interest (on a yearly basis) on the balance.

On a side note, I’ve been thinking about when it would make sense to borrow from a 401k. I need to give this more thought but it seems like it might be a good way to save for a down payment on a house. More on this in a future post.


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