SavingsTalk.com

kevin · 10-31-2007, 02:25 PM

I would like to add the maximum possible to my retirement this year. I am currently maxing out my 401k. I can afford to fully fund my roth IRA over 12 months. However, I would like to fund it 100% in January. Should I borrow the money from my 401k and put it in my Roth IRA then repay my 401k over the year. This seems like a win - win to me but I am not sure. My theory is over time I will get a better return on investment with the full amount then small amounts each month. (this is assuming the investment does well of course)<br />

natali · 10-31-2007, 02:25 PM

If you feel comfortable with that and think you could beat the rate on the loan then maybe. But I would keep funding my 401K fully and start funding a IRA in addition. Since you'll be paying interest on the money you borrow you will need to get a high rate of return on your IRA to compensate. I would do small amounts each month. That's how you 401k has gotten to its size. Use your tax return to fund the IRA or other means and then the following year try to fully fund it in January if that is a priority.

invest01 · 10-31-2007, 02:25 PM

I don't see that making too much sense. Don't forget that you will also pay income taxes on the amount you take out of the 401(k) as well as a 10% early withdrawal penalty. That is too much of a price to pay for it to make sense.

alien · 10-31-2007, 02:25 PM

It's an interesting plan to say the least. As far as your Roth IRA, that is the best tool available. I would max that out first before maxing out your 401k, unless you have company matching... In that case max your 401k first.

If you do borrow money from your 401k... You absolutley have to pay it back, or you will be subject to taxes and a 10%penalty. That will actually set you back even further. For this reason, I would avoid trying your theory. It will anchor you into your job. If you leave you job, you only have 30 days to pay it back to avoid the taxes and penalties.

Also, you are pulling it out of investments in your 401k to put it into investments in your Roth... It's a sideways move.

It's actually better to dollar cost average than to put a huge lump sum into the stock market at once. It would be better to fund your Roth on a monthly basis.

Look up dollar cost averaging. It hedges your bet if your investments go down.

natali · 10-31-2007, 02:25 PM

I would advise to payoff your house, cars, anything and everything first. This would save you, 6% +/- Plus, you have something noone can take away. Your home. Also, you may want to think about saving at least one years salary in an easy to get to savings account - look for 4% ROI.

401K is through a company Max it out then look elsewhere.

Have you thought of Annuities?

chicago_bull · 10-31-2007, 02:25 PM

What in the world are you think? Slow down and just of why you would do this. There are fees & risk. Isn't worth it. Be more patient.

BOB+ · 10-31-2007, 02:25 PM

I would advise against it....dollar cost averaging works better in a volatile market such as we are in. Remember, even though you are purchasing lump sum in January in the ROTH you are also liquidating lump sum in January to fund the loan. So the two wash....and you lose the benefit.

Other then that it's a way to get only a little extra into the plan via the after-tax income that you would be contributing via the loan.

To me it's not worth the tie that is created between you and your current employer. Leave the job while a loan is in effect and the taxation and penalty on that loan balance blows your whole idea out of the water.

10-31-2007, 02:25 PM	#1
kevin Greenhorn Join Date: Jul 2006 Posts: 26 Rep Power: 6	Retirment Question - Borrow from 401k to fund IRA? I would like to add the maximum possible to my retirement this year. I am currently maxing out my 401k. I can afford to fully fund my roth IRA over 12 months. However, I would like to fund it 100% in January. Should I borrow the money from my 401k and put it in my Roth IRA then repay my 401k over the year. This seems like a win - win to me but I am not sure. My theory is over time I will get a better return on investment with the full amount then small amounts each month. (this is assuming the investment does well of course)<br />

10-31-2007, 02:25 PM	#2
natali Greenhorn Join Date: Jul 2006 Posts: 31 Rep Power: 6	Retirment Question - Borrow from 401k to fund IRA? If you feel comfortable with that and think you could beat the rate on the loan then maybe. But I would keep funding my 401K fully and start funding a IRA in addition. Since you'll be paying interest on the money you borrow you will need to get a high rate of return on your IRA to compensate. I would do small amounts each month. That's how you 401k has gotten to its size. Use your tax return to fund the IRA or other means and then the following year try to fully fund it in January if that is a priority.

10-31-2007, 02:25 PM	#3
invest01 Greenhorn Join Date: Jul 2006 Posts: 35 Rep Power: 6	Retirment Question - Borrow from 401k to fund IRA? I don't see that making too much sense. Don't forget that you will also pay income taxes on the amount you take out of the 401(k) as well as a 10% early withdrawal penalty. That is too much of a price to pay for it to make sense.

10-31-2007, 02:25 PM	#4
alien Piggy Bank Join Date: Jul 2006 Posts: 63 Rep Power: 6	Retirment Question - Borrow from 401k to fund IRA? It's an interesting plan to say the least. As far as your Roth IRA, that is the best tool available. I would max that out first before maxing out your 401k, unless you have company matching... In that case max your 401k first. If you do borrow money from your 401k... You absolutley have to pay it back, or you will be subject to taxes and a 10%penalty. That will actually set you back even further. For this reason, I would avoid trying your theory. It will anchor you into your job. If you leave you job, you only have 30 days to pay it back to avoid the taxes and penalties. Also, you are pulling it out of investments in your 401k to put it into investments in your Roth... It's a sideways move. It's actually better to dollar cost average than to put a huge lump sum into the stock market at once. It would be better to fund your Roth on a monthly basis. Look up dollar cost averaging. It hedges your bet if your investments go down.

10-31-2007, 02:25 PM	#5
natali Greenhorn Join Date: Jul 2006 Posts: 31 Rep Power: 6	Retirment Question - Borrow from 401k to fund IRA? I would advise to payoff your house, cars, anything and everything first. This would save you, 6% +/- Plus, you have something noone can take away. Your home. Also, you may want to think about saving at least one years salary in an easy to get to savings account - look for 4% ROI. 401K is through a company Max it out then look elsewhere. Have you thought of Annuities?

10-31-2007, 02:25 PM	#6
chicago_bull Piggy Bank Join Date: Jul 2006 Posts: 60 Rep Power: 6	Retirment Question - Borrow from 401k to fund IRA? What in the world are you think? Slow down and just of why you would do this. There are fees & risk. Isn't worth it. Be more patient.

10-31-2007, 02:25 PM	#7
BOB+ Piggy Bank Join Date: Jul 2006 Posts: 96 Rep Power: 6	Retirment Question - Borrow from 401k to fund IRA? I would advise against it....dollar cost averaging works better in a volatile market such as we are in. Remember, even though you are purchasing lump sum in January in the ROTH you are also liquidating lump sum in January to fund the loan. So the two wash....and you lose the benefit. Other then that it's a way to get only a little extra into the plan via the after-tax income that you would be contributing via the loan. To me it's not worth the tie that is created between you and your current employer. Leave the job while a loan is in effect and the taxation and penalty on that loan balance blows your whole idea out of the water.

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