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Take 401k and pay off home

Discussion in 'Off Topic' started by Oregonhunter5, Aug 29, 2013.

  1. Oregonhunter5

    Oregonhunter5 2C IDAHO Well-Known Member

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    I know there's many people that will scream no, but if the stock market does what it did in 2001 why not? I'm serious about doing it. What do you guys think? It's not the model we have followed before, but things are different now.
     
  2. solv3nt

    solv3nt Portland Well-Known Member

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    You're going to take a huge hit on taxes. Other than that, why not? When I say huge, I believe that you're looking at 30% to 40%, but I'm only an engineer with an MBA, so maybe there's someone else that can speak more to the tax situation than myself.
     
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  3. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    Yes, it's the tax hit. Are you ready to take it?

    Would you be better to go to a cash position in your 401k now?

    Or, go to a cash position and then withdraw chunks of the 401k over a few years if the tax hit is more manageable? This would require a bit of napkin calculations based on your current income, the amount in your 401k, and where it bumps your total annual income for each year that you take a chunk of the 401k.

    Keep in mind that your total income goes higher, such that you need to pay more tax on your normal income. After the withdrawal, you might need to keep some cash to pay the resulting tax bill on the following April.

    Peter
     
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  4. solv3nt

    solv3nt Portland Well-Known Member

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    Is your 401k in an employer sponsored plan, or have you moved it to a private IRA when you last changed jobs? When I leave a job, rather than rolling my plan from one employer sponsored plan to another, I move it to a roll-over IRA. This allows me to better choose my investments; stocks, options, bonds, mutual funds, etc.

    I think as Peter stated earlier, it's better to change your portfolio than it is to take a 40% tax hit. Just my $0.02.
     
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  5. Oregonhunter5

    Oregonhunter5 2C IDAHO Well-Known Member

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    Your all right. Here is my thoughts. I hate payments. And all of the folks in 2001 lost half there 401k. So what's the difference if we can predict this will happen again? That's fortune telling though. But the evidence is there to a degree. I owe 200k on house. I make good money. The house is 1,300 square feet, with 6 people in it. We live way below our means. And we are happy!
     
  6. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    I'm not against the idea of cashing out. I'm sitting on a large IRA (consolidation of various employer 401k's over time). If the US Dollar becomes worthless or something else dramatic happens, then I would have been better to take the tax hit and pay off debt.

    I'm just not quite ready to jump off the cliff yet. What I have done is stopped contributing since my new employer has a crappy match and a five-year vest for their contribution to the 401k.

    Peter
     
  7. solv3nt

    solv3nt Portland Well-Known Member

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    I would just hate to see you lose 40% on taxes, but I understand the sentiment. Depending on how much longer that you have before you retire, you might want to consider changing your investment strategy to a more conservative approach, for example, invest in larger companies, bonds, large cap. mutual funds and exchange traded funds. In the end, you should probably talk to a financial consultant rather than just talking to gun guys :thumbup:
     
  8. bearingman

    bearingman Tualatin Member

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    Borrow the money from the 401k, no taxes, and you pay yourself the payment and keep the interest in the 401k.
     
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  9. Oregonhunter5

    Oregonhunter5 2C IDAHO Well-Known Member

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    I'm 39 years old
     
  10. rocky3

    rocky3 oregon coast Active Member

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    be patient and put your 401k in a very conservative position. Your house will do just fine , how many years to pay-off? Cut out all expenditures except the necessary ones.
    Check out Dave Ramsey's web page.
    http://www.daveramsey.com/home/
     
    Last edited: Aug 30, 2013
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  11. solv3nt

    solv3nt Portland Well-Known Member

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    You can cut off a few years by a making two payments per month, and also making a 13th payment each year, 25 and 26 if you pay twice a month.
     
  12. ocarolan

    ocarolan Portland, Oregon Well-Known Member

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    I think every prepper here feels contributing to a 401k is a Bad Idea, unless you have very special circumstances. Especially while paying 4% interest on a home loan. Don't tell the lemmings though, 'cause those monthly investments are the only thing propping up the stock market. ;-)

    401k cons:
    - Can't convert to locally-held tangibles
    - Congress may only give Social Security to those with empty 401ks
    - Congress will almost certainly increase the tax on distributions
    - Inflation will probably match any gains in value
    - Congress may nationalize and convert them to treasury bills, to help with the debt.

    Pros:
    ???

    Someone (Burt Gummer?) may have more thoughts on this... ;-)
     
  13. rick benjamin

    rick benjamin USA, Or, Damascus Secure the drama Silver Supporter 2016 Volunteer

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    Borrow your 401K money, pay off house, pay back 401k with house pmt money and savings contribution.
    Is there enough money to do it all at once? If not, don't do it.

    Diversify your 401K stocks, bonds, mutual funds, domestic vs foreign, big company vs small.
    An associate invested all in his company stock. Made almost a million $. When Enron happened, no bubblegum, he lost it all. Diversify.

    Accelerate debt amortization

    Most difficult because it requires intense discipline.
    Dave Ramsey says "live like nobody else today, so you can live like nobody else tomorrow".
    Reduce negative cash-flow. Turn off Satellite, sell cars you still owe on, sell the boat. sell some guns.
    List all your debts, lowest first, highest last.
    Minimize all payments, hammer at lowest debt till it's gone.
    Roll that payment money to the next debt. Hammer #2 till it dies.
    Roll money used to pay debts 1 and 2 to hammer debt #3 till it's toast.
    And so on.

    I didn't have my wife's co-operation in this, made it harder to do.
    2008 debt free. 2010 fired, retired. Blue collar telecomm.
     
  14. Burt Gummer

    Burt Gummer Portland Completely Out of Ammo

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    An IRA is just a gov/bank scam.

    You are attempting to pay taxes on income 'later'. Why? So when taxes are double what they are now you can pay then? If the tax rate were 100% it would take Americans 26 years to pay off the debt.

    Why do people faced with grim facts retreat into the 'all is normal' mode (aka Normalcy Bias) and even bother with nonsense like an IRA? Answer: Because an authority figure(s) and peers said to do it. Gawd forbid you think outside the box and you might get chuckled at by the deluded. Get a clue. It isn't 1995.

    Anyone who believes at 39 they will see usable revenue at 62 from an IRA (not sure about the age) is simply deluded. $400,000k might buy you a very nice pack of gum, who knows, maybe not.

    Our economy and monetary system is going to collapse WAY before then. Do you believe the money printing of trillions of dollars out of thin air is going to last forever? That the Federal Reserve fraud and the dollar/Petro Ponzi will still be going on in 20 years? Laughable! More money has been printed in the last 12 years than in the entire history of this nation dating back to 1776.

    ** Reality Check *** ** Wake up time! ** Turn off the banker media and learn a few things.

    Anything you don't have in your possession won't do you a damn bit of good.

    An IRA fund in some company 'out there' somewhere LOL!!! isn't going to do you squat. In fact, getting money from your local bank is going to be a futile endeavor. Study up on hyperinflation and 'bank holidays."

    I really have to laugh at this stuff at this point. Economy starts its collapse ... well I better call Etrade and cash out that IRA! HAHAHAHA No! All you are going to get is a recording at best, at worst, an East Indian laughing at you from the other side of the world for being so naive. Even if by some miracle you can get some funds its value will be declining hourly vs real goods.

    Only the naive Leave It To Beaver types have faith in government/banker promoted savings plans anymore. Do people even know that the FDIC is underfunded 1:371?

    Cash that crap out, pay the 10% penalty + current tax rate (I did that). Now the goods I bought are worth 3x more just six years later and secure. Well, nothing is ever secure, but if you want INSECURE keep your assets somewhere they can be stolen with a key stroke.

    Take the funds and buy a crap load of real things, anything. A bathtub full of 22lr, silver coins, a box of nails, a cordless drill, a generator, a chair, a poster for your bedroom, a radio, paying off your home/debt, ANYTHING .....but leave soon to be worthless dollars and government saving scams behind. They want you dependent and helpless, always.

    Frankly, given world events, it may be too late for you to dump the IRA scam already, but worth a try, at least get started on it.

    ^ This is why I am loved by some here and vehemently despised by others. :peace: Good luck to all and I agree to respectfully disagree with contrary (idiotic, mis-informed, deluded) opinions!! :funnypoint:
     
  15. ATCclears

    ATCclears Seattle area, WA Well-Known Member

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    Burt, I think you need to come up and b_tch slap me into jumping off the cliff and yanking $ out of my IRA...

    Peter
     
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  16. jluck

    jluck Really,Really, Close to Newport Oregon 97365 Voted #1 Member

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    Well, That was refreshing.

    OP, I too consider this same thing. Be sure your plan will even allow it. (mine wont outside of "hardship"). Consider the loan route, Have main asset free and clear while stock market goes to crap (It will). Even with job loss you should no longer be responsible for loan.

    I just made a major life change to get toward this same goal. I had a brand new home built on 33 acres in the middle of nowhere. It was nice but we work just to make big payments and making a bank rich. I sold it! Now have a 1940's built home on 1.6 Ac with very low payments on a short private note. WE LOVE IT! I am so much happier and I know the people holding the note are making the interest on there asset not some bank.

    I am 33 years old and should have it paid off by my 40th birthday!:thumbup:
     
  17. ZA_Survivalist

    ZA_Survivalist Oregon AK's all day.

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    Took a loan out against mine and purchased rifles and mags with it.
    Once its payed off and I walk away from the current job that its attached to Im going to cash it out, take the tax hit and invest in things that wont be nil anytime soon.

    With National bankruptcy & war on the horizon, they'll look for funds anywhere they can. 401ks and IRAs will be a thing of the past.
     
  18. ocarolan

    ocarolan Portland, Oregon Well-Known Member

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    Remember if someone sues you (scammer, ex-wife, gov't, etc), it's trivial for them to seize your IRA. Not so, your cached silver eagles.

    Also, as the gov't falters, they will almost certainly pass new laws on IRAs. Watch for a requirement to partially reinvest in T-bills, or bump the early withdrawal penalty to 50%. Large accounts especially may become open game for a populist congress, trying to avert bankruptcy.
     
  19. Oregonhunter5

    Oregonhunter5 2C IDAHO Well-Known Member

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    Burt. So if I'm hearing you correctly, you think I should cash in the 401k? ;)
     
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  20. Stomper

    Stomper Oceania Rising White Is The New Brown Silver Supporter

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    :peace: :peace: :peace: :peace: :peace:


    [video=youtube_share;PSZxmZmBfnU]http://youtu.be/PSZxmZmBfnU[/video]
     
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