I know that with the federal employee TSP, this is actually a sensible option. You can still contribute (not sure if matched during that the loan length, though) and then just essentially pay your student loan payment (likely reduced in either term or monthly payment amount) back to your TSP account. I know that the TSP rate is something crazy like 1.9%. I’d much rather pay that than the 6-7% of (some) of my student loans.
I know this is only an option if you’re a federal employee, but it’s something that I’ve been considering. I’ve only been a fed. for ~1 1/2 years now, so I’ll need more money in the account before I can even consider it.
Yeah, it was kind of a joke about the repo man :), but it sounds like payments are current on the student loan, so no worries about losing professional licenses. (And banks or collection agencies can make life miserable for anyone with an overdue loan of any sort…)
Yes, I believe they are all fund-dependent and plans are very rarely a “pure” 401k, but more often a hybridized 401k-style fund.
My data point…I can freely take loans out from the fund, but the interest rate and term are dependent on the purpose. House purchase and emergency events are quite competitive, but other purposes are a higher interest 5-year term, though still can be a positive alternative. Contributions into the fund continue as normal.
Repossession, and it’s aftermath, sucks. Here’s a little hint: don’t cosign any loans period!! I just finally got out from under the aftermath of the shit my brother put me through when I cosigned a vehicle loan with him.
I was made a reference for one of my friend’s student loans. He didn’t ask my permission and that doesn’t even matter because the lender didn’t bother to check with me. I got calls for years from people looking for him. Some of those callers were complete assholes and accused me of lying when I told them, truthfully, that I had no idea how to get a hold of him.
Oh, dear lord yes. I can’t tell you how many times I had to break the news to someone’s dear old grandma or grandpa that their beloved grandson/granddaughter was a deadbeat, and they’re on the hook for the loan. There’s nothing I love more than stirring up shit, let me tell you. :rolleyes:
Some have at least some options, but they’re nowhere near as generous as federal loans. Federal loans can (at least in theory) be postponed for 12 years or more. (My trainer had a story about a borrower who took a few classes each semester in community college so that her loans were always on deferment. She went 20 years before she was required to make any sort of repayment.) Private loans may have a forbearance period of maybe six months at a time with 12 months total over the life of the loan, and with a fixed in-school deferment period. For example, if the private loan has an in-school deferment period of five years and the student takes six to graduate, tough shit. The student (or the cosigner) has to start making payments. There are students who take out federal loans to get the refunds to pay on the private loans.
Nope. Too many cites out there to bother pasting them in, but do a search on “401(k) loan change job” and you’ll get a lot of hits.
It’s conceivable that some plans might let you continue making payments, but I haven’t been able to find any cites.
If your company is acquired by another, you may (probably WILL) be able to continue making payments on the old loan even though nominally your employer has changed - when my company was acquired 10+ years back, several people found themselves in that position. In their case it was an annoyance because they could no longer have the repayments taken out of their paycheck. The plan required them to send a check every month (and IIRC it had to be a bank / certified check, not a regular one).
A fun ramification: if you have an outstanding loan, and you’ve spent it on whatever purpose, chances are good you won’t even have the cash to pay the penalty / extra income tax. Imagine a 10,000 loan, and you’re at a 25% tax bracket. Next April 15th, you’ll have to come up with 3,500 dollars (2,500 tax, 1,000 penalty). Ouch.
All in all, there are very few situations in which I’d think a 401(k) loan was worth the risk.
Sweet!! In a year, you’ll be freeing up a ton of monthly cash flow once that car payment stops. You can throw THAT at the student loan and be done with THAT sooner than planned. It’ll be an amazingly liberating feeling.
I thought that was nuts… but apparently you’re correct. Bizarre.
So you have put aside 50,000 pretax and it’s grown to 60,000.
You borrow 30,000.
You pay back 31,000 (principal, plus 1,000 interest) with your post-tax money.
You retire and withdraw 61,000 and it’s all taxed.
Logic suggests that the 1,000 should be treated as a post-tax contribution and not taxed again at age 65, but apparently you do pay taxes on that. cite.
At least the double taxation is “only” on the interest portion.
I wonder how it works if you’d been making post-tax contributions?
I don’t know how “designated Roth” contributions to a 401k work. I would think that you could avoid “double taxation” if separate accounts are maintained and you can designate that the loan comes out of your Roth account.
That would be an interesting option. Of course, with Roth, the income wouldn’t be taxed anyway.
But it’s also possible to have a regular 401(k) and make post-tax contributions to that. For those - ignoring the whole loan scenario - I think it’s handled like an IRA in that when you take a distribution, you have to figure out some ratio of post-tax to pre-tax and pay income on the pretax fraction.
In a year, you’ll be freeing up a ton of monthly cash flow once that car payment stops. You can throw THAT at the student loan and be done with THAT sooner than planned. It’ll be an amazingly liberating feeling.