Loan on 403B / 401k

9 Replies

Through my employer I have a 403B.  I don't have the much money in there.  I'm probably going to be paying a decent amount in taxes this year, I made a lot more than last year.  What I was thinking was putting in a lot more money in there until the year was up.  Then if I needed it, I would take a loan on it.  Does this make sense?  Or should I just start a self directed 401k and pump some money into there and stop contributing to my employer one.  They do not match anything.  

@Edward Mccracken

Likely your only option is to contribute to your employer plan.

A Solo 401k plan is designed for someone who is self employed, and any contributions to such a plan would have to come from your self-employment income - not from your W-2 income from your employer.

If your intention is to leave that money in the plan and have it grow tax-deferred, then contributing and reducing your taxes makes sense.

If you think there is a higher than 50% likelihood that you will borrow the funds back out of the plan, then you may as well just not contribute in the first place.  

My plan was to use the money down the line to purchase real estate (rentals) in the SD401k.  My thinking was, to start building up the money in the 401k and temporarily barrow from it when I need it.  I can use the money now but I was thinking of the savings I would from the tax side.  Then when I'm ready to use the money, make a decent size purchase from the SD401k, use the money I put away to purchase it.  

Originally posted by @Edward Mccracken :

Both.  I made more through my employer that sponsors my 403b and my rentals.  I do not have a SD401k set up yet.  

If you plan to have a SD401k at some point, and especially if you plan to leave your employer eventually, you may want to consider contributing more to the 403b. It can reduce your tax burden now and once you leave the employer, you can transfer these funds to the Solo 401k. It's probably worth a discussion with a CPA regarding earned income in your self-employment to ensure you are eligible to contribute to a Solo 401k plan (or can become eligible based on your business activities).

@Edward Mccracken

Generally speaking, rental income is passive investment gains, and not self employment income that would qualify to sponsor a Solo 401k plan.  

You could potentially work with your CPA to structure your rental holdings as a business that generates earned income and therefore the potential to establish and contribute to a Solo 401k, but it is unlikely that would be to your advantage - moving low-tax income to a higher tax framework so that it can be tax-deferred into a retirement plan.

@Edward Mccracken

I agree that it makes sense to contribute to your own retirement account (403B) to reduce your tax liability and give less to uncle Sam. Those funds however will not be available for REI, you can only invest in what investment choices your plan offers.

In addition to that you can contribute to individual IRA, the limit is $5,500 for 2015.

When it comes to 401k - it is an employer sponsored plan and unless you own a small business or self-employed, you will not be able to set one up.