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Old 07-26-2017, 08:15 AM   #1
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401K Financing?

I'm about 3 years out from retiring and plan on purchasing a 30 Classic at that time. I've been toying with the idea of doing my own "financing" from my 401K as opposed to paying for the AS outright from my 401K. Anyone out there in AS Land that's "been there, done that?" Would appreciate any insight from the experienced AS'ers out there.
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Old 07-26-2017, 08:22 AM   #2
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First question is, will your current plan allow you to that? The 401(k) at the company I work at will only allow loans as long as we're employed by the company. Check with your plan administrator, perhaps?

If it's permissible, sounds like a good way to finance one, if you're so inclined. Pay yourself the interest instead of "the bank".

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Old 07-26-2017, 08:25 AM   #3
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Many years ago, I wanted to get a trailer, while the kids were young so we could affordably see the country. I borrowed $12K from my plan and paid it back over about 18 - 24 months. It was about my only option at the time, but I lost the earning power of that money in a time when returns in the market were high. Figure in the compounding of those lost returns over the next 26 years...till now, and it was an expensive move. BUT, I wouldn't have had all those years of quality time with the kids in the outdoors. We used the HECK out of that trailer for 17 years....so there are priceless benefits too.

Since we are again in a time of pretty good market returns, I wouldn't do it in your situation. Since money is relatively cheap for loans, I'd look into financing and/or taking some equity out of the stick house before I'd even consider the 401k route.
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Old 07-26-2017, 08:29 AM   #4
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*if* your plan gains are averaging less than the interest rate you can get on a loan, this is an OK approach but note what "Jim & Susan" mentioned: Often there are rules regarding plan loans such as a requirement that you be receiving a regular paycheck from which they deduct the loan payments.

If your plan is averaging 6% gains, for example, and you can get a loan for the Airstream at 4%, you're better off with the conventional loan. Oh and remember if you spend enough time in the Airstream every year (I think it's 14 nights) you can usually write off the interest on that note like a home mortgage.
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Old 07-26-2017, 08:33 AM   #5
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Hi

One thing you may run into is the plan limit on loans. With my plan there was a $50,000 max outstanding loan amount. That's not quite enough to pay for a brand new Classic. I'd bet you are over the age limit for penalty free withdrawals from the 401K, that reduces you need to use the "loan" mechanism. Tax wise, you pay on the IRA withdrawal or on the money you repay the loan with.

Go buy the Classic and start camping !!!

(talk about three of us all posting at the same time .... wow ...)

Bob
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Old 07-26-2017, 08:36 AM   #6
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Again, I emphasize......regardless of the rate "you are paying yourself" vs. loan rate.....the self pay rate is out of your pocket....and every day the balance is out of the market, you lose compounding earning potential.

Also, an RV loan is deductible, 401k loans are not. Home equity loans are deductible, 401k loans are not.

Again, there may be compelling reasons to utilize a 401k loan, but I advise some serious number crunching to decide. It's not a cut-and dried as it seems on the surface.
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Old 02-27-2018, 01:09 PM   #7
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Think carefully

Two things to consider...
1) Taxes: You'll have to pay taxes on the 401k withdrawal amount. Generally best to wait until after retirement when you're in a lower tax bracket. That is why 401ks are designed this way. Also if you are under 59 1/2 you'll have to pay Uncle Sam a 10% penalty tax.

2) if you take a loan from the 401k... you'll pay it back using after tax dollars and then get taxed again when you finally withdraw your 401k. So you'll end up paying double tax on both the principal and interest.

Mathematically you're generally better borrowing outside...take the tax deduction for the home interest.

Best of luck with your new AS.
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Old 02-27-2018, 04:20 PM   #8
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I didn't pay tax on the loan amount back in 93. It's not a withdrawal, it a loan against yourself. You only get taxed and penalized if you default on yourself.
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Old 02-27-2018, 04:26 PM   #9
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Right now I wouldn't because I can make more in the market then what I pay in interest if I were to finance.
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Old 02-27-2018, 04:43 PM   #10
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True, I did it when I was young, with a young family and I really wanted them to travel and experience the whole country. Took 12k out for a cheap a**ed SOB an just wore it out. Paid it back in about 2 years.
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Old 02-27-2018, 06:32 PM   #11
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Originally Posted by dznf0g View Post
Again, I emphasize......regardless of the rate "you are paying yourself" vs. loan rate.....the self pay rate is out of your pocket....and every day the balance is out of the market, you lose compounding earning potential.

Also, an RV loan is deductible, 401k loans are not. Home equity loans are deductible, 401k loans are not.

Again, there may be compelling reasons to utilize a 401k loan, but I advise some serious number crunching to decide. It's not a cut-and dried as it seems on the surface.


Be careful. The you’re paying yourself is a slogan to hide the damaging fact of 401k loans. They “feel” better but are not. No tax deduction, loss of interest/earnings on principal, then you’ll pay tax on what you pay back when you withdraw in retirement.
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Old 02-27-2018, 06:47 PM   #12
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The issue with 401K loans are the long term compound interest losses. The numbers can be staggering in a healthy economy (actually most any economy).

When you run the numbers you realize the losses can be higher than the interest incurred by predatory lending.
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Old 02-28-2018, 06:31 AM   #13
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Hi

A few more things to toss in the bucket:

1) Right now you can make more in the market than the "stock" interest you pay yourself on a 401K loan. That's not true in all market conditions. Take out a loan just before the market tanks and the math is different.

2) The "lower bracket after you retire" may or may not apply to you. Pull the price of a brand new AS out of the 401K and that alone will ensure your tax bracket is moved up a bit. The degree to which your state is "really good to retirement income" means less state tax deductions. Up goes the bracket on the federal tax.

3) How much is *in* the 401K? If a brand new AS is < 1% of the total, good for you !! If it is more than the total ... errr .... time to re-think the purchase.

Yes, I've used new prices above. They make it a bit more dramatic They are also easy to go look up. If you are buying your AS for < $100, yes that makes a difference. Just why you would need to take out a loan for a $100 AS ... not at all clear

Bob
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Old 02-28-2018, 07:10 AM   #14
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1. Unless I missed something, RVs are no longer deductable with the new tax plan, just like second vacation homes aren't, unless it's your primary domicile your out of luck.

2. Always plan for a worst case scenario, if everything goes down hill quickly and you've mortgaged your future against your 401K, where does that leave your future? If you do a conventional loan and the sh* hits the fan, you can walk away and just let the bank come and pick it up and write it off as a per month rental for however long you owned it. Again worst case, if you needed to file bankruptcy, you only lose the trailer not your retirement savings.

"Most employer-sponsored retirement plans are ERISA qualified. But if you are considering filing for bankruptcy, check with your employer to make sure your 401k is qualified. ... This means that an ERISA qualified 401k account is protected in bankruptcy and cannot be used to pay your creditors."
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Old 02-28-2018, 11:18 AM   #15
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I think 2nd-residence mortgages are still deductible, but subject to same lower caps as primary home, and I don't think they actually disqualified RVs from being treated as a 2nd home. There were rumors about that, but it still looks to me like they qualify. It only matters if you're in a position to itemize, though.
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Old 02-28-2018, 01:19 PM   #16
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Don't! Just Do Not do it. It is your retirement. You'll need every $ to enjoy your new life. Work as long as you can. Take a partial retirement if there is a way. Push out SS and 401K withdrawals as long as possible. Make the right choice for your life. Do not underestimate what you will spend in retirement.

Find a well used functional coach that allows you to enjoy the lifestyle. They are not that expensive. Example - a couple purchased a vintage ~ 20fter. It has dents and has seen a lot of use. It has patina and history. It is making new history every year and is not scoffed at by others. Your story can be same. We met a couple with a 30fter with similar history. It had been owned by others in their group, was well maintained and had history.

The RV lifestyle is much richer if you can fix problems yourself. Start learning how now.

Good Luck and stay safe. Pat
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Old 02-28-2018, 02:09 PM   #17
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Originally Posted by dznf0g View Post
I didn't pay tax on the loan amount back in 93. It's not a withdrawal, it a loan against yourself. You only get taxed and penalized if you default on yourself.
Most plans will not allow you to invest until a loan is paid in full. That’s a huge loss in potential tax free savings that can not be made up. Every situation is different but most time a 401k loan makes the least amount of sense.
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Old 02-28-2018, 02:11 PM   #18
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There was no prohibition like that in 1993, when I used mine.
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Old 02-28-2018, 07:58 PM   #19
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Quote:
Originally Posted by PKI View Post
Don't! Just Do Not do it. It is your retirement. You'll need every $ to enjoy your new life. Work as long as you can. Take a partial retirement if there is a way. Push out SS and 401K withdrawals as long as possible. Make the right choice for your life. Do not underestimate what you will spend in retirement.

Find a well used functional coach that allows you to enjoy the lifestyle. They are not that expensive. Example - a couple purchased a vintage ~ 20fter. It has dents and has seen a lot of use. It has patina and history. It is making new history every year and is not scoffed at by others. Your story can be same. We met a couple with a 30fter with similar history. It had been owned by others in their group, was well maintained and had history.

The RV lifestyle is much richer if you can fix problems yourself. Start learning how now.

Good Luck and stay safe. Pat
Now that is some great advice.
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Old 03-01-2018, 07:47 AM   #20
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Hi

Yet another bump in this road:

What *are* your retirement plans? If the answer is "... umm ... errrr ..." then best to get that worked out before you start spending / borrowing the 401K. Make sure that everybody is onboard with the plan.( = most retirements involve shared resources).

If you do have a plan and an AS is part of that plan then getting it at one age (maybe 55) vs another (maybe 65) might not be as big a deal as we're making it out to be. Of course, it that case we're not talking about financing or a loan, we're talking about a withdrawal and outright purchase. For tax and penalty reasons, at age 55 you might do something creative, but in the end, it's a withdrawal.

Bob
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