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helpmeout

How come you have to pay back 401k

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How come you have to pay back 401k when you take a loan out from it because after all it’s your own money that your taking out so it doesn’t make sense to me, please explain in a way I can understand 401k. 

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because a 401k is not designed to be a savings account for short term use.

 

FWIW< 401k loans are a terrible idea.

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I get it that it’s not for short term but why are they charging you to take out a loan from yourself is what I don’t get and there is penalty+interest from the irs if you leave your current job which makes it less interesting as I put 6%.

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1 hour ago, helpmeout said:

I get it that it’s not for short term but why are they charging you to take out a loan from yourself is what I don’t get and there is penalty+interest from the irs if you leave your current job which makes it less interesting as I put 6%.

The penalties provide incentive to use 401K plans the way they are intended by providing financial disincentives for using them in ways they were not intended.

 

For much the same reason the IRS will assess a penalty if you withdraw funds from a 401K without a valid rollover to an IRA before age 59-1/2, other than for a few very specific defined exceptions. 

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Posted (edited)
13 minutes ago, ivymike said:

The penalties provide incentive to use 401K plans the way they are intended by providing financial disincentives for using them in ways they were not intended.

 

For much the same reason the IRS will assess a penalty if you withdraw funds from a 401K without a valid rollover to an IRA before age 59-1/2, other than for a few very specific defined exceptions. 

But what if you die early? You can never count on a retirement if you die early because you would have no where to spend it after you die. I am very far from retirement because I am just 24 and it said I could have a monthly retirement of 10k a month by 2059 which would leave me at age 65 which is great and all but not if I don't survive that long. You can never count on the days you will die because the next minute I know I could have some sort of illness or even death blah blah blah. I just feel like they want you to save up for a long time until you die so you cant have access to your retirement. I am being realistic here and not saying everyone would survive pass 65. Hell even though I am 24 and healthy I could die from something else like a car crash or someone killed me on the side of the road etc... I am going to drop my retirement from 6% to 5%.

Edited by helpmeout

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17 hours ago, helpmeout said:

How come you have to pay back 401k when you take a loan out from it because after all it’s your own money that your taking out so it doesn’t make sense to me, please explain in a way I can understand 401k. 

You derive a pre-tax benefit from the contribution. 

 

It isn't an account to just dip into because you feel like it. 

 

As to the later arguments you offer, if you die early, then your estate derives the benefit from the use of the funds.  Dropping your contributions without a valid reason is NOT a fiscally-prudent move.  The whole point of retirement plans is to ensure you HAVE funds when you reach that point in time.  If you don't want to have those funds which came as pre-tax contributions (and have the benefit of time to grow), then that is on you...and those that have to pony up in an attempt to support you at that juncture. 

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Posted (edited)
19 hours ago, helpmeout said:

But what if you die early? You can never count on a retirement if you die early because you would have no where to spend it after you die. I am very far from retirement because I am just 24 and it said I could have a monthly retirement of 10k a month by 2059 which would leave me at age 65 which is great and all but not if I don't survive that long. You can never count on the days you will die because the next minute I know I could have some sort of illness or even death blah blah blah. I just feel like they want you to save up for a long time until you die so you cant have access to your retirement. I am being realistic here and not saying everyone would survive pass 65. Hell even though I am 24 and healthy I could die from something else like a car crash or someone killed me on the side of the road etc... I am going to drop my retirement from 6% to 5%.

What if my uncle had wheels and pedals?  

 

He'd be a bicycle.

 

 

Edited by cv91915

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You  are young enough that dropping from 6% to 5% isn't going to kill you..but if you are getting some sort of an employer match up to 6% (like I do with my employer), you are throwing away free money.

 

if you're having so much taking out that you cannot legitimately live, that is one thing - but If I had one regret .. it's that I didn't save enough (or at all) when I was younger....  I haven't so far been killed   😉 and I'm in my mid 50's.

 

 

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But what if you die early? You can never count on a retirement if you die early because you would have no where to spend it after you die. I am very far from retirement because I am just 24 and it said I could have a monthly retirement of 10k a month by 2059 which would leave me at age 65 which is great and all but not if I don't survive that long. You can never count on the days you will die because the next minute I know I could have some sort of illness or even death blah blah blah. I just feel like they want you to save up for a long time until you die so you cant have access to your retirement. I am being realistic here and not saying everyone would survive pass 65. Hell even though I am 24 and healthy I could die from something else like a car crash or someone killed me on the side of the road etc... I am going to drop my retirement from 6% to 5%.
It is all a way for the government to collect as many fees as possible from you. I like the 401k but paying a fee for not repaying a loan to yourself is crazy. So, you are correct and questioning this this withdrawal fee is not crazy :)

Sent from my SM-N950U using Tapatalk

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15 hours ago, nyquil556 said:

It is all a way for the government to collect as many fees as possible from you. I like the 401k but paying a fee for not repaying a loan to yourself is crazy. So, you are correct and questioning this this withdrawal fee is not crazy :)


 

If you don't want to be at risk of additional taxes or fees for not re-paying a sum due an account for which you had derived a tax benefit, then find a finding source that is NOT pre-tax funded.  Simple. 

 

Wish more people would take the time to learn the difference between pre-tax and post-tax vehicles...

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keep in mind deferred compensation is not your money free and clear. state and federal taxes need to be accounted for; moreover such accounts are designed and defined in tax code to dissuade people from accessing funds before 59.5 years of age.

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