Why Did I Borrow From My Pension Strategy?660486707118
De BISAWiki
Do some on the internet analysis about borrowing or taking out a loan from your 401(K) strategy and you will see about 99% of the websites you pay a visit to will inform you to never borrow funds from your pension.
So, why did I borrow from mine? I will inform you.
Very first equity annuities, mine is not a 401(K). It is equivalent and called a TSP Thrift Savings Strategy. It is run by the US Government and is a single of the biggest pension plans in the world.
I wanted to invest in some home and looked at my options. My very first choice was a residence equity line of credit. I have a condo now for about 20 years so I have some equity in it. My credit is very good, and it was an straightforward acceptance from the lender.
The issues were the charges and interest rate.
The interest rate was truly decent but the charges had been in the thousands of dollars.
I looked for an alternative and located that I could borrow from myself. So here are the factors I took out a loan from my pension fund.
1. I had sufficient income in the fund. I was permitted to borrow 50% or 50,000, whichever was much less. I borrowed $50,000.
two. The interest rate was the lowest in town. I borrowed the cash on February, 21, 2008 at three.5%.
three. Straightforward application. I had to fill out a 1-page form and fax it to the TSP office. I could have submitted it electronically and received a check in the mail. But, to get a direct deposit, a signature and a fax was necessary.
four. Low fees. TSP charges a flat rate of fifty dollars for the loan.
5. Paying it back. This is the beauty in my thoughts. It is an automatic payroll deduction, with no paperwork, and the income goes right back to my TSP (pension) with the 3.five%. I dont have to feel, and I will never be late with a payment.
six. Length of loan. TSP has two kinds of loans. 15 year and 5 year. The 15 year loan for investing in your main residence. The five year loan is for private use. I chose the 5 year because my property investment will be overseas in Thailand and will not be my major residence.
What is the downside?
There are a few things to look at. The funds I am making use of is pre-tax and now I borrowed it. There could be tax implications.
I program to pay the loan for two of the 5 years and then retiring. So, what happens to the cash that I borrowed and have not paid back? It will now be declared as income unless I spend it back inside about 60 days. If I can not pay it back, I will have to count this as taxable earnings, but, I dont care. I will be retired and my earnings will be low.
My funds is not in the industry. Accurate, 50K is now not going up or down. But, about $420 each two weeks, along with my typical investment, will be going back to my TSP. So, it will grow back.
Anyhow, that was what I did. It may possibly not be the remedy to your monetary issue, but it is one thing to think about if you have a TSP and need to have some cash for college, a house, or to pay some bills.
