(NOT) contributing to 401k

eman1200

eman1200

Touchdown! Greaser!
PoA Supporter
Joined
Mar 10, 2013
Messages
19,562
Location
Oakland, CA
Display Name
Display name:
Bro do you even lift
I don't have a structured settlement but I need cash now. any major downsides to reducing the % I contribute to my 401k for a few weeks to get extra cashola now? I currently contribute 8% (company matches 6) but I'm thinking of dropping that to like 1% for a few weeks, maybe a month or so. any reason why that's a bad idea?
 
Other than the long-term loss of return and possibly bumping up into a higher tax bracket?
 
That's not such a bad idea... BUT... get out your pencil and see what the actual paycheck will be with the reduced contribution. Because of the tax effect you may not see thjump you're looking for.

When the belt tightens go to the full match number first (you mentioned 6%). If the 2% isn't helping than make the next move.

My caution is that the sometimes a 'temporary reduction' doesn't always stay temporary.

Does your plan allow loans? That might might be a better bridge, since you MUST pay yourself.

Just don't withdraw from it. Worst idea.
 
rolivi said:
That's not such a bad idea... BUT... get out your pencil and see what the actual paycheck will be with the reduced contribution. Because of the tax effect you may not see thjump you're looking for.

When the belt tightens go to the full match number first (you mentioned 6%). If the 2% isn't helping than make the next move.

My caution is that the sometimes a 'temporary reduction' doesn't always stay temporary.

Does your plan allow loans? That might might be a better bridge, since you MUST pay yourself.

Just don't withdraw from it. Worst idea.
Click to expand...

I think we might have discussed this in another thread, but I do have the option to borrow AGAINST the 401k (NOT withdraw from it). The deal sounds like a pretty good one, where I borrow against it and pay all interest back to myself. I have thought about that as well.
 
For the loans -- verify with the plan administrator that you will continue to contribute during the repayment period. I'm told that not all allow that.

Also be aware that if employment ends before repayment you MUST satisfy the loan rather quickly or the balance WILL be considered a withdrawl. You don't want that!
 
Personally I do not reduce my 401(k) contributions for any reason, simply because of the company matching aspects. It's money you're giving up plus the associated reduction in long-term gains from that money.

I would see about various other short-term options. Do you have an investment account other than the 401(k) that you could pull money out of and then reinvest later? You might have capital gains (or losses) associated with that, but probably minimal. Some investment accounts also have options that let you borrow against your balance which can be good for short term needs. The rates are usually very low for that and without the paperwork associated with a HELOC, etc.
 
I have a 457. I pulled out about half of it to finance a stupid purchase.

The nice thing about that is that I was earning a negative return for a while, so now I've been paying myself back at 4%+ which is a damned sight better than the -6% I was getting. All while having buyer's remorse. Yay!

The loan itself is great.
 
I would consider reducing my 401(k) investment to be last resort measure.
 
luvflyin said:
Extra cash needed NOW!!?? Didja find an airplane to Buy???
Click to expand...

I want to have that extra buffer should something arise, like the one you helped me look at. there are a few potential planes either available now or soon to be available and I want to be as prepared as possible.
 
Temporary reductions tend to not be that temporary (don't ask how I know).

Borrowing against the 401K has worked for me. Might as well pay interest to myself (assuming the investments aren't exactly booming). But there are issues if you leave the job or...
 
eman1200 said:
I want to have that extra buffer should something arise, like the one you helped me look at. there are a few potential planes either available now or soon to be available and I want to be as prepared as possible.
Click to expand...

He wants to buy a plane quick so he can fly Amanda around and drink wine and...well you know.
 
eman I borrowed like 10K from my 401K years ago to buy an acre and half behind my cabin in the N.Ga mountains. Paid it back w/ interest going in my account and kept my contributions where they were. Then I sold the cabin (now w/ 3acres) and made about a good profit on the whole package.
 
I contribute the minimum to have a full matching contribution but that's it.
 
eman1200 said:
I don't have a structured settlement but I need cash now. any major downsides to reducing the % I contribute to my 401k for a few weeks to get extra cashola now? I currently contribute 8% (company matches 6) but I'm thinking of dropping that to like 1% for a few weeks, maybe a month or so. any reason why that's a bad idea?
Click to expand...
All I can say is now that I am retired, and my whole future depends on what I have in savings, I am certainly glad I didn't use that strategy in my younger years.
 
JOhnH said:
All I can say is now that I am retired, and my whole future depends on what I have in savings, I am certainly glad I didn't use that strategy in my younger years.
Click to expand...

I respect that. again, I feel like I'm adding to savings (8%) and this would be a very short thing, maybe a month or so. I wouldn't think that would have any significant impact on the end goal.
 
eman1200 said:
I respect that. again, I feel like I'm adding to savings (8%) and this would be a very short thing, maybe a month or so. I wouldn't think that would have any significant impact on the end goal.
Click to expand...
I agree. In aggregate, it will make minimal difference and depending on what the immediate cash is used for, it could be a net positive.
 
eman1200 said:
I respect that. again, I feel like I'm adding to savings (8%) and this would be a very short thing, maybe a month or so. I wouldn't think that would have any significant impact on the end goal.
Click to expand...

I think I'd more look at the overall strategy and the "slippery slope" mentality. It gets easy to take a bit here, a bit there, and make a difference long term. But there can be times when it's a positive. Depends on the situation and all the other details (such as other options), which the rest of us don't fully know. My thought is that if you're reducing your 401(k) contribution that gets matched, you're basically reducing your salary for that time period so the money is automatically costing you more to get.
 
There is no down side to borrowing against the 401, assuming you can still contribute.
 
Heck, if you need some extra money, just head downtown tonight and engage in some looting and then sell the stuff on eBay.
 
home equity line of credit. interest rates are very low. interest is deductible on your schedule A.
 
Dave Theisen said:
You are trying to buy a live monkey, aren't you?
Click to expand...

Isn't everyone? :eek:

I once had a monkey. In the Philippines. Dad was Air Force @ Clark Field and a kid I was friends with (I know, he had a friend?) moved on base and couldn't take the monkey on base. Gave it to me and I had it maybe an hour or two before it escaped and ran back to my friends old house off base, never to be seen again. Someone had monkey that night me thinks.
 
So if one makes $200k/yr, that's $7,700 per 2week pay period or approx $15k/mo. 7% of that going into 401k = $1,000 pretax.
 
Let's say the 401(k) is bringing in 5-7% right now and you decide to borrow against it and for that you get the honor of paying yourself 3% interest on that money while you pay it back. You're only losing 2-4% while you're paying yourself back ;)
 
EppyGA said:
Let's say the 401(k) is bringing in 5-7% right now and you decide to borrow against it and for that you get the honor of paying yourself 3% interest on that money while you pay it back. You're only losing 2-4% while you're paying yourself back ;)
Click to expand...

it isn't, it's less. and I'd be paying myself 5%.
 
I borrowed from my 401(k) a while back. Turned out to be a good deal. I kept contributing the same as I had been (key thing here). I borrowed while the marked was in the toilet, so the 5.25% I was paying myself was several points lower than the car loans I paid off with the money, AND several points higher than my investments were making. Win-win, although I'm certain some econ major will be along shortly to tell me all about how it was the stupidest idea ever. Paid the loan off just as the market picked up again. It was a very, very rare case of me having good timing.

Now that interest on a home equity loan is approaching insignificant, the picture changes... a little. There are significant dangers with both options, if you don't have a Plan B or are on shaky ground in any way.
 
eman1200 said:
it isn't, it's less. and I'd be paying myself 5%.
Click to expand...

How long is the payback and can you be sure those conditions will stay the same? Not trying to discourage, just making some points. Full disclosure, I've used a 401(k) loan in the past. Also, make sure you're safe in your job. Loan may have to be paid back if you were RIFed.
 
The interest rates today generally make the whole thing no big deal to loan yourself money.

The kicker on 401K loans is always that "due immediately" part if you're laid off.

Many companies love to do layoffs near the end of the calendar year which means you already made 80% or more of your salary that year, and then you're hit with a penalized retirement plan withdrawal if you can't pay it back, to add insult to injury in that year's taxes.

And it's a BIG penalty.

Generally, I leave retirement money alone. If my goal/plan was to save for retirement then it stays in a retirement account.

I'm also VERY leery of buying anything on debt that's a depreciating asset. If you're talking about an airplane, it's depreciating by the hour, until you throw a lot of cash at it and rebuild or replace the engine.

If you're cash strapped you could end up paying yourself interest on something you can't afford to repair, and it sits parked until you sell it off at fire-sale prices to get out. And then you'll pay to lower the loan but maybe not pay it off, and keep paying yourself that interest, long after the aircraft is gone.

Caution is in order. How long do you think you'll be at the current job? How fast can you pay yourself off? How much can you afford to fly on top of paying yourself? When will the airplane need an engine overhaul?

I don't like mixing multiple avenues for risk in the same "overall" fiscal deal. An airplane by itself is a risk. A loan on top of an airplane is another risk.

Them's my thoughts. Do as thou wilt, you only get one go at life AFAIK.
 
Last edited:
455 Bravo Uniform said:
So if one makes $200k/yr, that's $7,700 per 2week pay period or approx $15k/mo. 7% of that going into 401k = $1,000 pretax.
Click to expand...

No reason not to max out a 401k if you're making that much, or even half that much.
 
GeorgeC said:
No reason not to max out a 401k if you're making that much, or even half that much.
Click to expand...

The first thing I do on the first day of employment at a new company is sign up for the 401(k). I've always set my contributions at the level that maxes out the matching I get, and anything else I want to invest I do in my own investment account.
 
Quit contributing. Cash out 401K. Pay the damn 10%. Buy cool airplane. Figure out all that whatamIgonnadowhenIgetold crap later.
 
Last edited:
Ted DuPuis said:
The first thing I do on the first day of employment at a new company is sign up for the 401(k). I've always set my contributions at the level that maxes out the matching I get, and anything else I want to invest I do in my own investment account.
Click to expand...
I look at retirement savigns as the must do and pay myself first. when I was earlier in career and making less, I would go immediately to the match level and then figure out how much further I could push it, with the goal to max it out. Now that i'm making more, I max it every single year, even years when there are a lot of other things we could use money for.

it's also important (regardless of what account it's in) to invest it properly. I personally put every $$ into VTSMX which is an ultra low cost, broad index fund. I'm happy to follow the market and not try to outstmart it (happy to take an average return of 8-10%). This is how to get rich fellas. Don't pull money out when the market is down and keep putting in all you can. Once you get past the max 401k, investing in a regular brokerage account is a good idea.

Unlike Ted (and no offense Ted), I don't think I can beat Wall Street, so I just buy the index fund. Every study proves that about 98% of investors get less returns than if they had just bought the index.
 
denverpilot said:
The interest rates today generally make the whole thing no big deal to loan yourself money.

The kicker on 401K loans is always that "due immediately" part if you're laid off.

Many companies love to do layoffs near the end of the calendar year which means you already made 80% or more of your salary that year, and then you're hit with a penalized retirement plan withdrawal if you can't pay it back, to add insult to injury in that year's taxes.

And it's a BIG penalty.

Generally, I leave retirement money alone. If my goal/plan was to save for retirement then it stays in a retirement account.

I'm also VERY leery of buying anything on debt that's a depreciating asset. If you're talking about an airplane, it's depreciating by the hour, until you throw a lot of cash at it and rebuild or replace the engine.

If you're cash strapped you could end up paying yourself interest on something you can't afford to repair, and it sits parked until you sell it off at fire-sale prices to get out. And then you'll pay to lower the loan but maybe not pay it off, and keep paying yourself that interest, long after the aircraft is gone.

Caution is in order. How long do you think you'll be at the current job? How fast can you pay yourself off? How much can you afford to fly on top of paying yourself? When will the airplane need an engine overhaul?

I don't like mixing multiple avenues for risk in the same "overall" fiscal deal. An airplane by itself is a risk. A loan on top of an airplane is another risk.

Them's my thoughts. Do as thou wilt, you only get one go at life AFAIK.
Click to expand...

Not always, depends on the account balance and the 401k plan docs.

You could technically leave it there and continue to pay on it if the plan allows, everyone should get a copy of their 401(k) plan summary and read it, just to be familiar with your plan.

They are all full of little nuances because each plan is different.
 
MIFlyer said:
Unlike Ted (and no offense Ted), I don't think I can beat Wall Street, so I just buy the index fund. Every study proves that about 98% of investors get less returns than if they had just bought the index.
Click to expand...

None taken. I think your advice works well. I tend to get more conservative/index type funds for my 401(k), and my personal investment account is separate. That helps spread out the risk.
 
2016 401k maximum contribution is $18,000. So on a $200k salary the max contribution is 9%.

Also, avoid a trap: You can't contribute 15% up to the $18,000 because most plans only match when you contribute, so if you hit the max early use lose the matching funds.

And someone said not to max out your 401k if you have a good salary. Ignore that rubbish. Free money (matching) and Tax free earnings? You gotta do it.
 
  • Like
Reactions: Ted
MIFlyer said:
I personally put every $$ into VTSMX which is an ultra low cost, broad index fund. I'm happy to follow the market and not try to outstmart it (happy to take an average return of 8-10%).
Click to expand...

Yup. When I retired I transferred my 401K into Vanguard funds, and VTSMX (Total stock market) is one of the biggies. Now I have my 401K & IRAs there, except 3-4 stocks I buy monthly in a DRIP.
 
You must log in or register to reply here.
Back
Top