Refinance boat loan

bruceb58

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Re: Refinance boat loan

How do you figure? There was no tax or penalty on the money borrowed coming out. Income earned after 401 deduction would be taxed with or w/o this loan. Then because of DTIR this loan rate was 9% lower than I could have gotten from my bank. Plus most of this interest paid is being paid back into the 401k account. So basically you are paying interest to yourself.
When you withdraw the money, it gets taxed again. You basically got taxed twice on that money. Won't even talk about the gains you would have lost in the 401K. If you took out a 401K at the beginning of this year, you would have lost over 25% in gains.

http://www.mymoneyblog.com/double-taxation-and-the-real-reasons-401k-loans-are-bad.html

When I was young and didn't know any better I did one of these loans. Sometimes, I actually learn from my mistakes! :)
 
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garbageguy

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Re: Refinance boat loan

Would a home equity line of credit be a good idea?
 

bruceb58

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Re: Refinance boat loan


I agree, there is no double taxation on 401K principal. His new example showed no interest being paid on the loan. Any "interest" that you put back into the 401k is going to be double taxed however.

That is just one reason not to do it. There are numerous others.

1) If you pull the money out, that money is no longer protected inside your 401k in case of bankruptcy.
2) If you lose your job, you have to pay the the entire amount of money back within 60 days.
3) You are messing with a retirement account that you are supposed to be using for retirement.
4) You lose out on any gains that the 401k would have appreciated.
 
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bruceb58

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Re: Refinance boat loan

Would a home equity line of credit be a good idea?
Many people who thought that would be a good idea in the past became underwater in their homes and could no longer refi when rates dropped. That is just one of many.

As much as I hate having a loan on a boat, you can walk away from it(not a great idea and it kills your credit). Hurts way more walking away from your home.
 
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agallant80

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Oct 25, 2010
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Re: Refinance boat loan

Well I figured out guys. I decided to pull 80K out of my 401 at 2.9% and pay off my boat. My monthly payments back to my 401 are less than my bot loan was. I know if I leave my job I will have to pay taxes on the money I did not pay back. I can use my home line of credit for that and I don't plan on changing jobs for the next 10 years or so, so I don't really see it as an issue.
 
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agallant80

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Re: Refinance boat loan

Hey, after you bought a 25' boat with a 5.0 in it(after everyone's advice not to), I figured anything was possible. :)

Well its not like they had another one with a 5.7 in it on the lot. Look at it this way my 5.0 MPI makes as much HP as a carbed 5.7. Check out the blog in my signature. Good times even with a little 5.0
 

agallant80

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Re: Refinance boat loan

Just joking with you! :)

I know. I swear if I had to do it again I would have taken more time but there were issues with the x-wife that lessened the thinking time and expedited the buying/trading in time. I can say this though. I think I have had the same amount of fun on my under powered 25 footer than the 47 foot yacht I spent years on. The view is just as good :)

I think boating is one of the best things out there.
 

greenbush future

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Re: Refinance boat loan

Worst thing you could possibly do. This so called "interest" that you put back into the 401K is taxed money. Guess what! It gets taxed on the way out again as they don't segregate before and after tax money in a 401k account.

So many other reasons this is an awful idea. That money is no longer invested, and compounding, that alone would DQ playing with your retirement. Talk to your financial guy before making a possible mistake.
 

Home Cookin'

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Re: Refinance boat loan

Would a home equity line of credit be a good idea?

Often this is the best way to go but there are so many variables and individual circumstances that you can't answer yes or no.

Like everything else about boats, "it depends" is the only answer.

Start with the meaningless term "boat" unless this whole discussion is only about a 25' trailer kept i/o about a year old.

Smaller boats and older boats are terrible collateral, so loans collateralized with boats reflect that and are usually terrible deals. Therefore, loans not collateralized by the boat are often better deals, if you can qualify--technically a "pay-day" loan is not collateralized but that's not what I meant.

An unsecured signature loan may be the best.

A HELOC is great because you get to deduct the interest, thus reducing the effective rate by the tax benefit. That is whty many people with investments nonetheless keep debt on the house--the interest w/ deduction is lower that what the investment is earning.

But as mentioned, fluctuation in value might trap you, as could financial ruin leaving your house exposed to foreclosure. But actually, banks seldom foreclose on a HELOC in second position over 10-20,000. You'll haev a lot bigger problems than a boat loan if you have to study those details.

Overall, I say look for a non-boat loan first, except financing a new large boat.
 

bonz_d

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Re: Refinance boat loan

I agree, there is no double taxation on 401K principal. His new example showed no interest being paid on the loan. Any "interest" that you put back into the 401k is going to be double taxed however.

That is just one reason not to do it. There are numerous others.

1) If you pull the money out, that money is no longer protected inside your 401k in case of bankruptcy.
2) If you lose your job, you have to pay the the entire amount of money back within 60 days.
3) You are messing with a retirement account that you are supposed to be using for retirement.
4) You lose out on any gains that the 401k would have appreciated.

1) In the case of this loan no money is taken from the principal and no penalty in incurred, principal stays intact. She is also still making contributions to the 401k so there is still growth.
2) is correct
3) See #1
4) Not in this case because again principal is untouched and contributions are still being made.
5) The tax on the interest is a wash.

Then with the amount of medical debt owed there is no way we were getting an interest rate this low from anywhere.
 

bruceb58

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Re: Refinance boat loan

1) In the case of this loan no money is taken from the principal and no penalty in incurred, principal stays intact. She is also still making contributions to the 401k so there is still growth.
2) is correct
3) See #1
4) Not in this case because again principal is untouched and contributions are still being made.
You don't know how these loans work. If you have $100K in your 401K and you take a $40K loan, you now have $60K in your 401k and any gains you have are on that $60K. If you don't understand this, you seriously need to talk to a financial adviser.

I won't even discuss #5 because if you don't even understand #4, you have bigger problems.
 
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