Reputable Rollover Firm

Don't borrow money from your 401k. Yes, the interest you pay on the loan you pay to yourself (forced savings), but that doesn't make up for the opportunity cost of what you would have earned had you left the money in the account.

Secondly, and most people do not know this, interest you "earn" on the money borrowed is taxed twice. Your loan payments (principal and interest) are deducted from your paycheck after taxes (not before taxes like your contributions likely are), but the interest paid is considered pre-tax "earnings". So when you eventually withdraw that money upon retirement it will be taxed again as income.

 

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With our employer plan, there is no interest or tax on loans. Plus, not much buying power is really lost. My 401K is basically play money anyways. I have a very nice retirement with my employer, making my other investments just extra money. So if I can use it, why not?

 

Well, because money is cheap at the current rates. For example, lets say you have $10,000 in a mutual fund earning 20% annual return. You can either borrow the $10,000 from your 401k and lose out on that return on investment, or borrow $10,000 from a bank/credit union at maybe 4% or 5%. I would borrow outside the fund everytime.

Great that your plan does not charge any interest (you sure about that?), but most plans do. And if you pay interest, its paid with "after-tax" money and then taxed again as earned interest in your plan when you withdraw it.

Do whatever you want obviously, but 401k loans are generally a bad idea unless you are strapped for cash and have few options.

 

The plans often require interest because it's an attempt to replace some of the returns that you missed out on by pulling your money out of the market. Hotpocket makes a good point - anyone who borrowed money against their 401ks last year and paid little to no interest in the repayment of the loan lost out on as much as 30% gains in a bull market.

How do you define "a really nice retirement from your employer?" Do you mean a pension? If so, you must be ignoring the steady stream of articles over the past few years about this pension fund or that one defaulting and leaving pensioners with the tab. If not, then your retirement is likely an securities-based investment vehicle, which is also exposed to the risks of the broader market. Either way, treating your own 401k as if it were fun money because your employer offers you a really nice retirement does not make good financial sense in any way.

Borrowing from a 401k should always be an option of last resort, for all the reasons already mentioned. Those who do so fail to adequately grasp the fundamental financial principles governing the future success, or failure, of the investment.

 

Of course there's also the other side of the equation to consider; The performance of PMs over the past 12 months. The price of silver dropped from $23 to $20 in the past 12 months. Gold dropped from $1350 to $1300 during the same period.

So, if one invested 401k monies in PM over the past 12 months, one would have lost out on the 30% gains of stocks AND lost money in PMs. I know hindsight is 20/20 on the specifics of market performance, but the bottom line is stocks actually represent people working for you, while PM just sits there. Just keep that in mind when pulling money from other investments to purchase PMs.

 

Check out redwood gold group. I did an order with them not too long ago and they beat anybody's price. Very happy with my gold IRA rollover. My portfolio is safe now

 

Therein lies the false sense of security. Many also thought their portfolios were safe with a PM IRA - only to find out that the metal wasn't there to back it.

This is one of many stories - and they are plentiful on the internet for a reason - there are plenty of scams.

I have big issues with tax deferred retirement vehicles. People are told to put all their wealth in them, rely on them - and then have no other means when the markets tank or companies fail.

To me, a well balanced portfolio for retirement consists of several things.

CASH ON HAND - #1
Paid off real estate (lowered cost of living)
Post-tax accounts stocks/bonds/CD's (someday they will pay interest again)
Social Security (hoping it's there when I start to draw)
401k/IRA
Bullion / holdings

And then the bonus income:

Pensions/annuities/etc...
Part time income / consulting
Small side business
Rental income / property
Collections and valuables (coin/stamp, boats, art, jewelry, whatever else you have of value)




Pre-tax retirement funds have wealth that is tied up until all of the sharks take their share of it - and then they can transfer what is left into another account - only to have it chum the waters again.

To complicate it even further, adding PM to the mix just seems like a recipe for disaster.

For whatever money you save on tax deferral - you pay on gains - and then some. You also pay an administration/maintenance fee to the "keeper of the metal" so to speak.

Last, you don't have it in possession, and it is a cash deal in USD - so if/when it liquidates - it is liquidated in cash - assuming the financial company providing it is solvent.

If you are fearing the worst in the stock market - move into less volatile funds within the IRA. Money Market / Stable Value / Bond funds. If you have an IRA that can purchase stocks and/or ETF's then you can buy the gold and silver indexes - but again - you are paying a huge tax penalty when you liquidate.

There's something to be said for convenience and tax deferral, but PM IRA's just scream of risk and overhead.

If you only have money in an IRA and have no cash on hand - the first thought in my mind is to put aside enough cash to ride out any market volatility outside the tax deferred systems that lock up your resources. Then buy physical metal and store it yourself in a SDB or some secret location on your property.

http://www.coinweek.com/bullion-rep...r-bullion-biz-bankrupt-vault-virtually-empty/

As Much as $25M of Stored Metal ‘Not Actually Purchased’
As a bullion investor and webmaster of About.Ag, I understand well the risks that customers face when ordering precious metals, especially from out of state vendors or websites. I’ve seen firsthand the implosion of such companies and the havoc these business failures bring to investors – people like you and me who want to diversify their asset holdings and look to bullion as a way to do that. Last year, I had started warning people about The Tulving Company a few months before they shut down owing customers $17M, so I quickly noticed the red flags showing that this respectable 15-year-old company might have serious financial problems. So when, in June, a customer alerted me to problems at Bullion Direct, saying that he had waited several months without receiving metal he had purchased. I looked into it.

 

Seriously, 20%??? Maybe E.F. Hutton's brother-in-law. The real world is showing 5% to 7% on a 10yr rolling cycle right now, it used to be ~10% but money is cheap now - and times are volatile.

Realistically it can be good to tap your 401k - but knowing the real cost and understanding the risks.

I dumped my 401k twice. Both times to buy a house. Both times I dumped at near/peak of the market - Dec/2000 and in Jan/2009. Even after taxes and penalties - I avoided ~30% and greater losses (almost 50% in 2009/2010) and moved the money into real estate.

Now, I wasn't timing the market - I wanted to buy a house - and I had the money sitting there. I thought about a loan from myself and decided I'd rather have the cash on hand in case something else came up. It was sheer luck that I got out before the drops. It also taught me a lesson - that money tied up in accounts like this are subject to market volatility - and that I'm a sheep following the herd to someone else's tune.

While everyone else was singing the 401k/201k blues in 2010 - I was busy acquiring my second home at a rock bottom price.

Was it the best decision for everyone? Heck no! But it did work out for me. I got out of one asset at near peak and into another near bottom.

The key to success is having a 5 year plan and adjusting as you see the world changing.