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Taking Loan out of 403b Retirement Account

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Jack10525
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Taking Loan out of 403b Retirement Account  Reply with quote  

Hello All,

I have a 403b through work that I invest the max in each year. I am almost 50 years old and make 85k a year. I have a pretty low mortgage with at least 50% equity in my home. I am married and we have 2 cars. One is paid off and the other has about 6k left on the 2% interest loan. I am thinking of taking out an 8k loan from my retirement to pay off the car loan and 2k on a credit card. Other than the mortgage I have no other loans/debt. The loan would be paid back biweekly with a 4.75% interest rate back to my 403b. If I set the term for 3 years it will be about 110 a paycheck to pay back. I will end up paying back 8575 for the loan but it goes back to me. I will continue to contribute the max to my 403b. Yes or no?

PS: Happy Cino De Mayo!!!
Post Sat May 05, 2018 4:47 pm
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oldguy
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No, it doesn't make much sense to pay 4.75% to rent money and then use it to pay off 2% money - that is an immediate 2.75% loss. As for the "it goes back to me" theory - if you like that why not pay yourself 10% or 15% instead of only 4.75%? See, it doesn't work, lol. But the bigger problem is that you will be pulling $8000 out of service - ie, if you invest in the 11% SP500 index, you will be losing 11%/yr.

I would want to keep the 2% car loan for the full term, that's very inexpensive use of someone else's money.

In fact, I do that - I have a $36,000, 2%, 5 year loan on a new car. And I plan to keep that loan for the whole 5 years. Meanwhile my own $36,000 will stay invested in the SP500 Index where it typically doubles about every 6.5 years. (The rule of 72).

If the $2k cc loan has a toxic rate, maybe you could refi the paid-for car at a credit union (at about 3%) and use that to get rid of the toxic loan.

When you hit age 50, you can start investing $24,000 into the 403. If you use the SP500, your fund will grow to about $900,000 in 15 years (not counting what you already have, that will be about 5X higher in 15 yrs).

And a Happy May 5 to you!
Post Sat May 05, 2018 6:52 pm
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Jack10525
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Thank you for the advice. The car loan will stay. The 2k credit card is interest free until Aug. I'll just make larger payments to get it paid down before the interest kicks in. This is what I usually do anyway. I have other money in savings just wanted to be "debt" free.
Post Sun May 06, 2018 3:28 pm
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rosabella
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Post Tue May 15, 2018 2:38 am
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Post Fri May 18, 2018 5:29 am
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