Financial question

[NittanyBuff24]

Had a buddy ask me if he should take money out of his 401B to help pay off a student loan, think he said he was 60-70k in debt with 15 more yrs to teach, I told him I thought there would be a penalty to take out early, but that's about the extent of my expertise. No idea what his rate, payment etc.. is, thnx fellas

 

[NittanySlappy]

Will have to pay taxes and assuming he’s under 59 1/2 a 10% penalty.

 

[Bloomnit]

If I were in his shoes, I would look to create another income stream or look for a better paying job. An extra 20-22K in income pays that thing off in three years. That's surely a better option than borrowing against his 403B.

 

[lein]

Borrowing against a 401K or 403B is foolish. You will pay back the loan with after tax dollars. Then when you withdrawal at retirement, that money is taxed again.

 

[Nitt1300]

Getting financial or legal advice on a message board is like going to your barber for surgery.

 

[PSULionsDub]

I agree with the poster above that said you should not take out a loan from a 401k or 403b unless it is the last available financial resource. I have always told my Teacher friends, who need financial assistance, that they should get a second job or stay on a STRICT budget every month. Often times, the STRICT budget is not a reality, so a second job becomes more of a reality. I see Teachers become tutors, babysitters, weekend retail associates, get full time summer jobs, and they use the income from this second job to pay off student loans or other debt and spending necessities. This advice is not just for teachers, but other employees in their 20’s who are making income in the $40-80k range.

 

[ILLINOISLION]

I believe the penalties for withdrawals before age 59 1/2 have been waived this year because of the virus AND the taxation of (any age) withdrawals this year can be spread over the 2020, 2021 and 2022 tax years.

I don’t recall where I read this, someone please confirm this for the Board.....thank you!

 

[Thomas1945]

Getting financial or legal advice on a message board is like going to your barber for surgery.

You do realize that for centuries people did go to their barbers for surgery. I know that’s an outdated policy, but from a nostalgic view barbershops are so much more pleasurable, less expensive and user friendly than hospitals. Perhaps people come here for financial advice because it’s embedded in our genetic makeup.

 

[cjrugger]

Had a buddy ask me if he should take money out of his 401B to help pay off a student loan, think he said he was 60-70k in debt with 15 more yrs to teach, I told him I thought there would be a penalty to take out early, but that's about the extent of my expertise. No idea what his rate, payment etc.. is, thnx fellas

Ask @MikeJones2353 His new pool is sweet supposedly

 

[LionJim]

If I were in his shoes, I would look to create another income stream or look for a better paying job. An extra 20-22K in income pays that thing off in three years. That's surely a better option than borrowing against his 403B.

Easier said than done, but I can’t argue with what you said.

 

[SLUPSU]

Borrowing against a 401K or 403B is foolish. You will pay back the loan with after tax dollars. Then when you withdrawal at retirement, that money is taxed again.

This seems to be common retort... double taxation.... Kindly show me a written example with appropriate math from any source that proves that you pay more taxes when you borrow from a 401k.

 

[mn78psu83]

If I were in his shoes, I would look to create another income stream or look for a better paying job. An extra 20-22K in income pays that thing off in three years. That's surely a better option than borrowing against his 403B.

^THIS!^

 

[PSUSignore]

Your friend should also keep in mind that most retirement accounts like 401k are protected from debt collectors in bankruptcy. If his/her situation is really dire that could be a consideration. Conventional wisdom states not to use these types of accounts to pay off debt unless it's a last resort.

 

[sluggo72]

Easier said than done, but I can’t argue with what you said.

Why?

 

[sluggo72]

This seems to be common retort... double taxation.... Kindly show me a written example with appropriate math from any source that proves that you pay more taxes when you borrow from a 401k.

Don’t have time for that but if u take a loan from a 401k and the change jobs, that loan just became a withdrawal with all the taxes consequences associated with it. Many people don’t realize this when taking a 401k loan

 

[LionJim]

Why?

Why what?

 

[SLUPSU]

Don’t have time for that but if u take a loan from a 401k and the change jobs, that loan just became a withdrawal with all the taxes consequences associated with it. Many people don’t realize this when taking a 401k loan

You can always pay back the loan within 60 days. I'm addressing the general comment that if you borrow from a 401k you automatically pay more taxes not the unusual type of situation you presented.

 

[sluggo72]

Why what?

Why do you think it’s easier said then done relative to having a second stream of income ( you know the statement you replied to)

 

[sluggo72]

You can always pay back the loan within 60 days. I'm addressing the general comment that if you borrow from a 401k you automatically pay more taxes not the unusual type of situation you presented.

Wait a minute, how you repaying the loan? If you had money to do that, why would you take the loan in the first place??

 

[LionJim]

Why do you think it’s easier said then done relative to having a second stream of income ( you know the statement you replied to)

I kind of misinterpreted it as finding a new job that pays $20k more than your current job.

 

[SLUPSU]

Wait a minute, how you repaying the loan? If you had money to do that, why would you take the loan in the first place??

You're getting side tracked.

 

[psu1969a]

Had a buddy ask me if he should take money out of his 401B to help pay off a student loan, think he said he was 60-70k in debt with 15 more yrs to teach, I told him I thought there would be a penalty to take out early, but that's about the extent of my expertise. No idea what his rate, payment etc.. is, thnx fellas

In PA, you can not take money out of your retirement while you are teaching. If you are under 59 1/2, would be subject to IRS penalties.
First, live within your means. Second, get a part-time job to pay off debts. Three, live within your means.

 

[Sproul]

All my teacher friends have extra jobs. Uber, waitress, air bnb, tutoring. The ones without husbands at least

 

[cjrugger]

Borrowing against a 401K or 403B is foolish. You will pay back the loan with after tax dollars. Then when you withdrawal at retirement, that money is taxed again.

That’s not any different than paying off the debt with after tax dollars that weren’t saved to begin with

 

[NoVa Lion]

Getting financial or legal advice on a message board is like going to your barber for surgery.

Ditto that. As with any financial decision there is no cookie cutter answer. Every situation and every individual is different so the correct move is also always different.

 

[Agoodnap]

You do realize that for centuries people did go to their barbers for surgery. I know that’s an outdated policy, but from a nostalgic view barbershops are so much more pleasurable, less expensive and user friendly than hospitals. Perhaps people come here for financial advice because it’s embedded in our genetic makeup.

No, they come here with these types of questions because there are a bunch of smart, educated, and friendly people willing to help out with virtually anything. That's why they come here.

 

[BW Lion]

Had a buddy ask me if he should take money out of his 401B to help pay off a student loan, think he said he was 60-70k in debt with 15 more yrs to teach, I told him I thought there would be a penalty to take out early, but that's about the extent of my expertise. No idea what his rate, payment etc.. is, thnx fellas

A straight withdrawal from the 401b would be foolish because of tax penalties. However borrowing against the 401b might be beneficial but it depends on the interest rate differential (I.e. what interest rate is your friend paying on the student loans vs interest rate that would be applied to the 401b loan).

 

[Bloomnit]

Easier said than done, but I can’t argue with what you said.

I don’t think doing it is all that difficult. I had a similar debt in my 20s, started refereeing high school sports on nights and weekends year round, Generated another 25 grand in income a year, and paid the loans off in 26 months. It was a lot of work when I was doing it, but man what a difference it made later.

 

[LionJim]

I kind of misinterpreted it as finding a new job that pays $20k more than your current job.

I don’t think doing it is all that difficult. I had a similar debt in my 20s, started refereeing high school sports on nights and weekends year round, Generated another 25 grand in income a year, and paid the loans off in 26 months. It was a lot of work when I was doing it, but man what a difference it made later.

Thanks for sharing.

 

[Thomas1945]

No, they come here with these types of questions because there are a bunch of smart, educated, and friendly people willing to help out with virtually anything. That's why they come here.

Let’s try again, I never questioned the sincerity, intelligence or the friendliness of anyone who responded. Neither did I question the intelligence of the original poster. Quite often on a varied array of topics I’ve found non football threads here to be both informative and helpful.

What I pointed out was a factual Historical truism. There maybe absolutely no correlation to what I stated and the present situation under discussion. Since I was neither a geneticist, a sociologist or an anthropologist I can’t prove or disprove my remarks. I just thought it was a humorous antidote, because the World is sadly comprised many people who seek and rely on advice from sources far less credible, honest, or reliable than members of this board would ever provide.

 

[walleye38]

Had a buddy ask me if he should take money out of his 401B to help pay off a student loan, think he said he was 60-70k in debt with 15 more yrs to teach, I told him I thought there would be a penalty to take out early, but that's about the extent of my expertise. No idea what his rate, payment etc.. is, thnx fellas

Never touch it. With bank loans so low, take out a loan from the bank.

 

[ChandlerPearce]

Simple......find a wealthy widow!

 

[ThePennsyOracle]

Getting financial or legal advice on a message board is like going to your barber for surgery.

Only when it is from miserable old bastards like yourself.

 

[NittanySlappy]

I believe the penalties for withdrawals before age 59 1/2 have been waived this year because of the virus AND the taxation of (any age) withdrawals this year can be spread over the 2020, 2021 and 2022 tax years.

I don’t recall where I read this, someone please confirm this for the Board.....thank you!

You must show the money was taken out and used to pay for COVID related expenses. Then no penalty.

 

[roswelllion]

So I tend to agree with Nitt 1300 who suggested this is not a place for anything but opinions. However here are mine

.School loans - first of all I would do nothing until after the election. If D's sweep it wouldn't surprise me to see some sort of school loan relief.
Borrowing from 401k/b - It seems some are confusing a withdrawal versus a loan. A withdrawal is certainly subject to taxes and a 10% penalty in under 59 1/2. As one poster stated there are exceptions for this year but that is getting deep in the weeds and is supposed to be for COVID related expenses only.
The positive to borrowing is you are really paying yourself back.
The downside is it doesn't do much to help cash flow [trading one payment for another]
Most advisors would say never borrow from 401k. This is your retirement so why reduce that. Also i think they fear this can be a habit. Run up some debt, borrow from 401k etc. You never build the account.
So in summary
. Wait the politicians may help bail him out
. If you must be very disciplined about paying back AND continuing normal contributions.
. If he owns a home look to a low interest HELOC or cash out refi. Tax deductible and may help cash flow.

**** All of these solutions are financial "deck chair shuffeling" for not living within your means ****

 

[dvin41]

Had a buddy ask me if he should take money out of his 401B to help pay off a student loan, think he said he was 60-70k in debt with 15 more yrs to teach, I told him I thought there would be a penalty to take out early, but that's about the extent of my expertise. No idea what his rate, payment etc.. is, thnx fellas

I’m sure this will get ripped to shreds by others, but do not do anything with your 403b. Instead look in Dave Ramsey’s plan and his reason why you never take out 401k / b loans.i have a 403b as well. We paid off student loans working Ramsey’s plan and have changed our lives completely. I would recommend his website or podcasts. This questions come up all the time.