Loan from 401K to complete 20% down payment
- Thread starter Silver_fox
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This i agree with. but this is not double taxation.
just so we are clear, the concept of double taxation with corporations is that you, as the shareholder, are the owner of the company. when the company pays taxes, you are in essence paying those taxes. then when the company pays out the dividend, you pay taxes again on your personal income tax return, thus double taxation.
a 401K, while legally your money, the IRS doesnt tax it because you have never taken possession of the money, so again, while the money is legally yours, the IRS doesnt necessarily view that way from a tax treatment perspective. therefore, the IRS essentially views you as two entities. so while you think you are paying yourself and paying taxes twice the IRS doesnt see it that way. the IRS sees one entity, the 401K, engaging in an arms length transaction with the borrower, you. as with any arms length transaction, you will pay a fair market rate to the person who loans you the money, in the case, its the 401K.
Paris - let me ask you this, if you borrowed money from say a friend or parent because of hardship and you paid them the principal/interest, would you consider this double taxation? im guessing you wouldnt. that is how the IRS views it, two parties in an arms length transaction.
just because Suze Orman is on TV doesnt make her right. plenty of people on TV give incorrect information on TV. and i didnt say you were stupid, just 95% of the population
just because someone is on TV i dont take their word for things. i make sure i understand and agree with any concepts they are trying to explain.
this is not double taxation - if you paid a bank 4% is that double taxation? when you pay a bank the 4% interest rate, you are paying them the money they could have earned from an alternative investment of similar risk. why is it double taxation because you pay to a 401K instead. the 401K administrator, has a fiduciary duty on behalf of the plan to maximize the returns of the assets. so it would not be in the best interest of the plan to loan you money without a commensurate interest rate because it is lending you the money vs potentially earning a return in the market.
I know what you are saying.
What I'm saying is that if you want to be technical, since the interest you pay is "after tax dollars" vs "pretax" dollars for a regular contribution, your net contribution is less because you don't receive the initial tax deferment.
For example, you contribute $10k to your 401k, that's all pretax and lowers your tax basis.
But, if you pay interest to your 401k loan, that's after tax dollars, so that's equivalent to $7k (assuming 30% bracket). So your "contributions" are lower.
It's not specifically double taxation... but it's a lower value of your dollar because you are using after tax dollars.
This has nothing to do with the difference between getting a loan from a bank and from your 401k, it has to do with the difference between the value of your money of a normal contribution vs. an interest contribution.
And like the article says, for a short term loan, it's negligible, but over a 30-year span for home basis 401k loans (30 year amortization), the effect could be greater. But then, you have to consider home appreciation vs. 401k appreciation and that most likely will balance out.
It's not really "double taxation" but it's after tax contributions vs. pre-tax contributions thus taking away some of the tax benefits of using a 401k. Regardless, paying myself 3.5% vs. paying a bank 3.5% as long as I don't have any emergency money needs without all the hassle is convenient.
Yes, yes, I'm all of that. :
Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.
Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.
I will not dignify your sexist comment-- (I'll let her pic do the talking.)
Don't waste your time acknowledging his ignorant, idiotic comments. Simply put you know what they say - you can't change stupid. ;D
. But there's no penalty with a 401k loan.
The Motor Court Company
Well-known member
Is JustSaying Paris' shill account? her US Marine husband? or a secret admirer?
He always defends Paris from people who don't agree with her.
Maybe we should start a discussion on TI couples, the what if thread. Qwerty and SoCal, JustSaying and Paris, ...etc
As much as I don't like Qwerty, I am siding with the big bat Mexican on this.
He always defends Paris from people who don't agree with her.
Maybe we should start a discussion on TI couples, the what if thread. Qwerty and SoCal, JustSaying and Paris, ...etc
As much as I don't like Qwerty, I am siding with the big bat Mexican on this.
irvinehomeowner
Well-known member
Farmie + IHO?The California Court Company said:
qwerty
Well-known member
Paris said:
This i agree with. but this is not double taxation.
just so we are clear, the concept of double taxation with corporations is that you, as the shareholder, are the owner of the company. when the company pays taxes, you are in essence paying those taxes. then when the company pays out the dividend, you pay taxes again on your personal income tax return, thus double taxation.
a 401K, while legally your money, the IRS doesnt tax it because you have never taken possession of the money, so again, while the money is legally yours, the IRS doesnt necessarily view that way from a tax treatment perspective. therefore, the IRS essentially views you as two entities. so while you think you are paying yourself and paying taxes twice the IRS doesnt see it that way. the IRS sees one entity, the 401K, engaging in an arms length transaction with the borrower, you. as with any arms length transaction, you will pay a fair market rate to the person who loans you the money, in the case, its the 401K.
Paris - let me ask you this, if you borrowed money from say a friend or parent because of hardship and you paid them the principal/interest, would you consider this double taxation? im guessing you wouldnt. that is how the IRS views it, two parties in an arms length transaction.
qwerty
Well-known member
Paris said:
just because Suze Orman is on TV doesnt make her right. plenty of people on TV give incorrect information on TV. and i didnt say you were stupid, just 95% of the population
just because someone is on TV i dont take their word for things. i make sure i understand and agree with any concepts they are trying to explain.
qwerty
Well-known member
irvinehomeowner said:
this is not double taxation - if you paid a bank 4% is that double taxation? when you pay a bank the 4% interest rate, you are paying them the money they could have earned from an alternative investment of similar risk. why is it double taxation because you pay to a 401K instead. the 401K administrator, has a fiduciary duty on behalf of the plan to maximize the returns of the assets. so it would not be in the best interest of the plan to loan you money without a commensurate interest rate because it is lending you the money vs potentially earning a return in the market.
I took a 401k loan in 2010 for a home purchase. Turned out to be a good decision. Bought a short sell and now it's worth 300K more than I bought it. In my mind the only downside of a 401k loan is missing out on gains in the market. If the market goes down which it may very well do, then you'd actually turn out ahead. For someone with over a million in their 401k taking a 50K 401k loan for a home purchase is no big deal.
irvinehomeowner
Well-known member
qwerty said:
I know what you are saying.
What I'm saying is that if you want to be technical, since the interest you pay is "after tax dollars" vs "pretax" dollars for a regular contribution, your net contribution is less because you don't receive the initial tax deferment.
For example, you contribute $10k to your 401k, that's all pretax and lowers your tax basis.
But, if you pay interest to your 401k loan, that's after tax dollars, so that's equivalent to $7k (assuming 30% bracket). So your "contributions" are lower.
It's not specifically double taxation... but it's a lower value of your dollar because you are using after tax dollars.
This has nothing to do with the difference between getting a loan from a bank and from your 401k, it has to do with the difference between the value of your money of a normal contribution vs. an interest contribution.
And like the article says, for a short term loan, it's negligible, but over a 30-year span for home basis 401k loans (30 year amortization), the effect could be greater. But then, you have to consider home appreciation vs. 401k appreciation and that most likely will balance out.
It's not really "double taxation" but it's after tax contributions vs. pre-tax contributions thus taking away some of the tax benefits of using a 401k. Regardless, paying myself 3.5% vs. paying a bank 3.5% as long as I don't have any emergency money needs without all the hassle is convenient.
The California Court Company said:
Yes, yes, I'm all of that. :
Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.
Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.
The Motor Court Company
Well-known member
OK admit it. Is she hot in person? or you just love gun wielding woman who drives fast cars?
JustSayin said:The California Court Company said:
Yes, yes, I'm all of that. :
Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.
Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.
The California Court Company said:OK admit it. Is she hot in person? or you just love gun wielding woman who drives fast cars?
JustSayin said:The California Court Company said:
Yes, yes, I'm all of that. :
Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.
Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.
I will not dignify your sexist comment-- (I'll let her pic do the talking.)
Paris167
New member
JustSayin said:The California Court Company said:OK admit it. Is she hot in person? or you just love gun wielding woman who drives fast cars?
JustSayin said:The California Court Company said:
Yes, yes, I'm all of that. :
Or maybe I dont like to see people piling on or taking potshots at people they might perceive as easy targets.
Or maybe it's the continued rehash of a tedious topic that was beaten and dead long ago.
Most people here can intelligently discuss topics without name calling.
I recognize, though, that some cannot and some just use internet anonymity to dispense with common decency.
I will not dignify your sexist comment-- (I'll let her pic do the talking.)
Don't waste your time acknowledging his ignorant, idiotic comments. Simply put you know what they say - you can't change stupid. ;D