Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
6y
@Brian DeLorme I have for the down payment, shorter term. It went fine, depends on your company but mine allows the standard up to $50k loan, minimal paperwork, 2-3 business days funding and only a $100 admin fee.
The funny thing is that you have to pay yourself interest on the monies borrowed. So in essence the interest you pay back to yourself is tax free (I believe) ask a CPA on that one. If I''m correct you make more money tax free :)
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
6y
@Brian DeLorme I haven't used it for buying an entire property for 50k or less, mainly because I haven't come across too many properties that cheap. But don't see any reason why it couldn't be done.
Keep in mind, I mentioned "shorter term" above, if you lose your job you have to repay it all within 60 days or it becomes taxable income. Or it could prevent you from jumping to a better job, since that's something that would need to be addressed.
Rental Property Investor · Orlando, FL · Member since 2018 · 301 posts · 354 votes
6y
@Brian DeLorme I haven’t done this but may at some point so I’ve researched my plans options. Three things to keep in mind (for my plan through fidelity at least):
1) the loan payback is principal and interest for x time period. If I recall correctly the payment was close to $1k a month...so may sure there’s enough margin in the deal to make the payment plus extra principal to get it paid off
2) you cannot contribute to your 401k while paying the loan back so it hilts additional contributions
3) the payments are taken directly paycheck each paycheck cycle (weekly/bi-weekly)
2) you cannot contribute to your 401k while paying the loan back so it hilts additional contributions
Apparently that depends on the plan. I have taken a 401k loan in the past and was able to continue contributing while paying back the loan. I would check with the plan administrator for the particulars of your program.
Here are the general considerations regarding 401k loans. Please note that under most plans you can still contribute to the 401k even if you take a 401k participant loan.
401k Participant Loans
If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k. The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.
Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).
Please keep in mind the multiple loan rules:
Under those rules, the sum of the balances of a participant's outstanding 401k loans under a single 401k plan (using the highest outstanding balance of each loan over the last 12 months) can't exceed 50% or $50,000 whichever is less. Thus, if you took a $50,000 loan and paid it back within 6 months, you would need to wait another 6 months before you could take another $50,000 loan.