Financial advice for 401k loans vs. using the CARES act

I'm glad you brought this up- we're in the same boat and I kinda forgot about the 401K loan deal. I took one out several years ago, there was a one time fee of <$50 and around 4% interest that I "paid myself" (went back into the 401K).
I also have a paid-off house that I'd like to take my time getting moved out of and fixed up for max profit. The 401K loan would at least get us to that 20% down which will save a bunch of PMI.
I'd like to hear a definitive answer on whether the loan would show up on a credit report. Even if it does, the home loan could be locked in before you even start the 401K loan process (should just take a couple days).

 

^^^^This. Leaseback option.

 

The only possible downside I see is if you took out that loan the day after a big market hit (like about a year ago...)

 

A hard money loan isn't ideal but might be your best option. I'm sure you could find someone local, a realtor or builder might be able to link you the right person.

 

Loan officer here. A 401k loan doesn't impact your debt to income ratios on conventional financing. We simply deduct the amount of the loan from your available assets used as reserves. Really a non-issue for most people and I deal with this all the time.

 

and there's the answer =)

 

Doesn’t sound relevant here but one thing many don’t think about on a 401k loan is that the day that you are no longer employed by that company the loan is due.

 

If the shit hits the fan hard enough that I don't get my 30 weeks severance...I'll have bigger problems than a 401K loan coming due

 

I just checked- not true in my case:

Termination of Employment and Loan Repayment
If your employment is terminated for any reason, prior to repaying your loan in full, you may continue making repayments on your outstanding loan(s). Payments must be kept up-to-date and made in the exact payment amount or multiples of your payment amount as agreed in your loan initiation agreement.
Loan payments can be made by remitting a cashier check or money order payable to “Wells Fargo Bank, N.A. for CenturyLink Dollars & Sense 401(k) Plan FBO <Participant’s name>” and mailed to Wells Fargo at Wells Fargo Retirement Service Center, DSR D1118-026, 1525 W. WT Harris Blvd., Charlotte, NC 28262. If you have terminated employment and would like to set-up ongoing loan payments via ACH debit from your savings or checking account, contact the Wells Fargo Retirement Services Center (see page 3 for contact information).
If you take a full distribution of your Plan account balance prior to repaying your loan, or if your loan payments are not kept up-to-date, the outstanding loan amount will be treated as a distribution and deducted from your vested Plan Account. You are responsible for all applicable taxes and tax penalties.

 

That's great. The little companies I worked for, it was due when you quit or were terminated. That's why I wanted to make sure he knew about it, but I think it is nice to see either companies are changing, or the government allowed the laws to be changed for this.

 

One of the many perks of working for Giant Evil Telco Inc.

 

I think its already been stated, but the CARES withdrawal option expired on 12/31/20.

Also, yes you could have spread out the taxes, but its a withdrawal, not a loan.

What it did do was waive the 10% Penalty for early withdrawal.

It is no longer an option crash.

Crusty fack like you has to be over 59 1/2 tho, so no penalty anyhow.

My first thought was what "Bowman Forklift" was saying.....you have 90 days to put it back in.

 

I'm sure it's different for everyone- but here's the basics on my company's plan:

loans up to 50% of your 401K balance or $50K max
$50 processing fee
4.25% interest paid back to your 401k
"general" loan up to 60 months
"primary residence" (not refi) loan from 12-180 months

I quickly skimmed the CARES act, looks like you can take up to 100K but you have to show you were somehow affected by the 'vid... I'm guessing it wouldn't take much, but still don't see how it's better than the conventional 401k loan in the context of this thread.

 

For me- I don't need the stress of that limitation, no matter how hot the housing market is. Depending on how much work the new place needs I'm not sure 90 days is enough for me to get moved and settled and fix up the old place and get it sold.

 

I was looking at selling simply because the value of my home has skyrocketed. Unfortunately, to build now is ridiculous due to lumber prices.

 

I administer our 401k plan. Bottom line, a COVID-related distribution must have a legitimate reason for the distribution or they will not pass the audit. You should also check with what provisions they chose to adopt . Some employers did not adopt any changes.

As well, employers have been notified that any type of fraudulent activity in terms of special access grants or abuse of COVID related funds will be met with extreme repercussions. I would not be surprised if the public were not held accountable as well. We were just notified that OSHA will also be looking into safety plans put in place during the past several months and if they don't like them, employers are going to get a double whammy.

 

So my advice would also apply to you....sell now why the market is crazy high and then rent for a 12-24 months and let things catch up then build.

 

Problem is I am not a risk taker when it comes to financial stuff and I am not sure if the market will sort itself out in the next 12 - 18 months around me. There is a really good chance I would sell high and have to buy even higher on top of having to move twice. There are so many companies moving in to the area that the backlog is huge. It is almost as stupid as the California stuff where people were getting turned down because their offer was not enough above the asking price.

 

Thanks for the input everyone. I guess I still have some digging to do to see what our company does.

 

401k loans dont show up on the credit report either.