Borrowing from 401 K

[LadyShiva]

If that is the case, how about moving your current 401k contributions to a 529? If you feel pretty comfortable with the amount of money you'll have at retirement, it doesn't make a lot of sense to continue to fund it when the money could be used somewhere else

She wouldn't be getting the 401k match from DH's company.

It's pretty hard to turn down free money... Though I agree funding a 529 would be the best bet, if they could get a good rate of return.

Brandie

 

[Irin997]

Someone mentioned this earlier but I wanted to say it again....regardless of what your fund will be and how much is in it now, if you take out a loan you're missing out on that $20,000, $50,000, or however much of compounding interest. And boy does that add up.

Here's the situation: Say you have $180,000 in 401k at 9% interest that compounds monthly. After 1 year, that $180k is worth $212. If you take out $80,000 for college, that $100,000 is only worth $125k. So you're losing $87,000 for retirement. Just a scenario.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Someone also mentioned that you can get a loan for college, you can't get a loan to finance your retirement.

 

[Mickeyluver37]

Someone mentioned this earlier but I wanted to say it again....regardless of what your fund will be and how much is in it now, if you take out a loan you're missing out on that $20,000, $50,000, or however much of compounding interest. And boy does that add up.

Here's the situation: Say you have $180,000 in 401k at 9% interest that compounds monthly. After 1 year, that $180k is worth $212. If you take out $80,000 for college, that $100,000 is only worth $125k. So you're losing $87,000 for retirement. Just a scenario.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

Someone also mentioned that you can get a loan for college, you can't get a loan to finance your retirement.

I think that this is a good explanation! There is too much talk of "paying yourself back interest" and this part gets overlooked by many. It is *not* a "wash." You are most definitely LOSING money if you take out a loan.

Also, you DO NOT have to pay any kind of penalties or taxes on a loan as long as you don't default on it. This has nothing to do with your plan, or your employer, it's IRS code. The PP that said a friend did it must be talking about a hardship withdrawal, not a loan that is paid back.

 

[clarabelle]

Thanks again everyone -I promise -I won't do it!!!
Thanks for all these links. I love stuff like this to look at.

 

[bumbershoot]

"Do people usually apply to where they want -and then figure out the money after they are accepted? Or apply based partly on where they can afford?"

In my experience, it's both.

Also in my experience, depending on where your kids want to go and are accepted to, you can get financial aid offices that are QUITE nice! My school, well, I started directly after my mom divorced my first stepdad. That first year, our taxes still had his income on them, even though he was gone, totally disappeared, by the time I started. She wrote them a letter with all the info, and they approved me for lots of aid.

Then she remarried (her childhood sweetheart...NOT my dad, LOL) and so the next year, HIS income was on there, even though we had only become family after I was 18. Again, a letter, and my aid was restored.

As for jobs...when I was in college, I worked all 4 years through Work Study. Had a job at a pizza place on campus, and it was great. I even got management experience one year there! I also worked over most summers. Work Study was great b/c they HAD TO accommodate your school schedule (and they could check to see if what you said was your school schedule WAS your school schedule), and if they couldn't, the WS office would move you to a different job that could work with you.


I understand the free money thing with the match, but if our retirement funds were funded nicely already, I would definitely start throwing some money into a college fund. Even if school loans are 5 or 9%, that's still 5 or 9%, ya know? And who knows if you would actually GET those loans... Just seems cleaner to me, neater, to have funds for college separate from funds for retirement... But you can always run the numbers with your benefits people, see what YOUR 401k charges for loans, look at what the match brings ya, etc etc etc...