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Posted: 7/22/2013 7:25:57 AM EST
I owe about 110k on my house. I was wondering if there was a way to pay it off with my 401k (around 150K) and become my own mortgage holder ... in essence paying myself interest instead of some evil bank. And if I did would the interest still be an income tax deduction ?
Link Posted: 7/22/2013 7:39:13 AM EST
I'd ask in the business and investment section but I'm going to say that its not a good idea. Is that 150 after the .gov takes 40% for pulling out early? I imagine other factors such as your age and when you want to retire with how much would come into play as well.

I would look into Dave Ramsey and build a budget to pay off your house early.
Link Posted: 7/22/2013 8:53:03 AM EST
The penalties and taxes would likely cost more than you would save on interest. Your interest would no longer be tax deductible, as you no longer have a mortgage, owing yourself doesn't count.
Link Posted: 7/22/2013 8:53:05 AM EST
Yeah I don't want to just take it out I basically want to make a loan against it
Link Posted: 7/22/2013 10:00:36 AM EST
How far are you from retirement, and how long will your plan allow you to make the loan for?

One thing you need to consider when taking out the loan, is what your Capitol will no longer be earning in that account. With what the market is doing, you should be achieving 10%+ this year alone. I don't know anyone paying that kind of interest on their house note.
Link Posted: 7/22/2013 11:16:36 AM EST
Originally Posted By qsplash:
I owe about 110k on my house. I was wondering if there was a way to pay it off with my 401k (around 150K) and become my own mortgage holder ... in essence paying myself interest instead of some evil bank. And if I did would the interest still be an income tax deduction ?
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Since the 401k is tax free entity, making payments back are not deductible as far as tax purposes go. I tried to do this 20 years ago, and found out it was going to cost me more money than it was worth. One of the best bets is to borrow from your 401k, purchase a REIT (Real Estate Investment Trust). Most REIT's return Tax Free income, that you can use to pay back your 401k and have whats left to pay off your mortage or what ever. That's what I did. I borrowed $100k from my 401k, @ a 4.5% rate, invested the $100k in a REIT, that was paying 8.5%. Since most REIT's last about 10-15 years, I was able to pay my 401k loan off, and bought a motorhome (second home - with tax deductions) with the remaing $.


Link Posted: 7/22/2013 11:21:36 AM EST
While we have this thread up. What do you guys reccomend 401k or IRA. I've been using the TSP through the .mil but been looking at IRA's through USAA.
Link Posted: 7/22/2013 11:52:42 AM EST
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Originally Posted By Reservist:
While we have this thread up. What do you guys reccomend 401k or IRA. I've been using the TSP through the .mil but been looking at IRA's through USAA.
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My understanding is that a 401k is setup by your employer and with that, the can do matching funds. With an IRA, your employer cannot match funds. If you retire or leave your employer, you can leave your 401k as it sits with your previous employer, but if you donate funds to the 401k, they are nolonger matched by your previous employer. Your option is to convert your 401k after you no longer work for that employer to a IRA. You cannot convert a IRA to a 401K. This only goes one way. I ended up with 3 different IRA's after I converted them from 401ks. The main advantage of an IRA is that you can select from just about any investment vs in a 401k your employer controls the investments that you can invest in.

Hope this helps

Link Posted: 7/22/2013 12:34:32 PM EST
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Originally Posted By Reservist:
While we have this thread up. What do you guys reccomend 401k or IRA. I've been using the TSP through the .mil but been looking at IRA's through USAA.
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There are others that are more qualified than I am on this, but I avoid investing with banks like usaa, wells, citi, ect. I prefer staying with fidelity, Wachovia, Charles schwab...

They seem to have lower fees, and better research materials available.
Link Posted: 7/22/2013 1:05:15 PM EST
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Originally Posted By chevy69002000:
...the .gov takes 40% for pulling out early....
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The penalty for taking it out early is 10%
Link Posted: 7/22/2013 1:07:30 PM EST
Originally Posted By qsplash:
.. I was wondering if there was a way to pay it off with my 401k (around 150K) and become my own mortgage holder ...
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No chance, although it would be nice if you could.
Link Posted: 7/22/2013 1:24:58 PM EST
Not worth it. Better to have a lower mortgage interest rate that is also tax deductible, and contribute the max annually to the 401k.

If mortgage rates were above 12% or so, and 401k yields around 5%, it might make sense.
Link Posted: 7/22/2013 2:25:35 PM EST
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Originally Posted By BillBond:


The penalty for taking it out early is 10%
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Originally Posted By BillBond:
Originally Posted By chevy69002000:
...the .gov takes 40% for pulling out early....


The penalty for taking it out early is 10%


I know, I just added all the taxes.

link
Link Posted: 7/22/2013 6:45:12 PM EST
[Last Edit: 7/22/2013 6:46:12 PM EST by sigh]
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By Reservist:
While we have this thread up. What do you guys reccomend 401k or IRA. I've been using the TSP through the .mil but been looking at IRA's through USAA.
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There are advantages to both. So the answer is ideally both. There are independent limits on both IRA's and 401k's as to how much you can contribute pre-tax (unless you're doing Roth) so you can contribute a lot more towards your retirement investments. That and having more than one type of investment is never a bad thing.
Link Posted: 7/23/2013 1:58:42 AM EST
Link Posted: 7/23/2013 6:59:23 AM EST
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Originally Posted By alphabavo:


There are others that are more qualified than I am on this, but I avoid investing with banks like usaa, wells, citi, ect. I prefer staying with fidelity, Wachovia, Charles schwab...

They seem to have lower fees, and better research materials available.
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Discussion ForumsJump to Quoted PostQuote History
Originally Posted By alphabavo:
Originally Posted By Reservist:
While we have this thread up. What do you guys reccomend 401k or IRA. I've been using the TSP through the .mil but been looking at IRA's through USAA.


There are others that are more qualified than I am on this, but I avoid investing with banks like usaa, wells, citi, ect. I prefer staying with fidelity, Wachovia, Charles schwab...

They seem to have lower fees, and better research materials available.



USAA is a very good investment bank, as well as Fidelity, Charles Schwab, and T Rowe.
Link Posted: 7/23/2013 7:00:35 AM EST
[Last Edit: 7/23/2013 8:52:29 AM EST by mmsSierra]
Hi OP, this somewhat applies to your question: http://finance.yahoo.com/news/8-retirement-planning-mistakes-avoid-111046172.html.

Look at number 7 on the list.
Link Posted: 7/23/2013 7:07:51 AM EST
Discussion ForumsJump to Quoted PostQuote History
Originally Posted By Reservist:
While we have this thread up. What do you guys reccomend 401k or IRA. I've been using the TSP through the .mil but been looking at IRA's through USAA.
View Quote


If your company offers a 401k or 401k like benefit with employer matching, you should take advantage of it. If they do not or if you want to roll money from a tax deferred account to something else, an IRA is a good idea. If you are thinking of saving money for retirement in a tax deferred method and do not have an employer 401k, then look at Roth IRA or IRA. USAA does offer both and has a decent fund selection. I think USAA offers at least one free investment analysis which would be good to take advantage of. By the way, I do not work for or represent USAA. I just think they are a good company.
Link Posted: 7/23/2013 10:33:08 PM EST
the duration of a 401k loan before its considered a distribution and subject to 10% penalty is way shorter than a 15 yr mortgage.
Link Posted: 7/24/2013 4:03:00 PM EST
If your 401K allows, you can borrow against it and pay back with interest, how you use the money is generally up to you. There are also home mortgages through 401K, but generally that is limited to initial purchase or first time home purchase.
You can do what you propose, but the amount you mention may be to high for what you are attempting, depends on the max loan amount the plan allows.
Usually, you must have twice the amount you intend to borrow. Also, as always, there are penalties if you default or stop payment, along with tax ramifications.
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