Ready
Thinks s/he gets paid by the post
Suze is at it again.
Last night she told a viewer not to take out a 401K loan, because they will need to pay it back with after tax money, so they will be paying double taxes. I thought I must have heard her wrong, so I replayed the snippet. Nope, she actually said it. Her argument is that the loan money is being paid with after tax dollars, and somehow she equates that to double taxation.
What she seems to be ignoring is that the money in the fund was deposited pretax. So the money being used to pay it back is no different than paying back a traditional loan with after tax dollars. It has no impact on the taxes that were deferred on the original deposit.
What she also ignores is that the interest on a 401K loan is being paid back to yourself. So in effect, it's a loophole that allows someone to contribute more than $17,500 into a 401K per year, by contributing the entire $17,500 through payroll deposits, and then contributing the interest into the account on top of those funds. And the interest is money you are paying to yourself, not a lending institution.
So if you need to take out a loan and have the funds to do so in your 401K, I think it's a great option. You may run into trouble if you leave the company you are working for and may have to pay it back within 60 days, but otherwise it's a great deal.
As for Suze, I still enjoy watching her show and find it interesting to see the smattering of callers who present their various financial issues. But I was left seriously wondering, doesn't anyone double check what Suze tells these people just to prevent her from embarrassing herself and saying things that are completely ludicrous?
Last night she told a viewer not to take out a 401K loan, because they will need to pay it back with after tax money, so they will be paying double taxes. I thought I must have heard her wrong, so I replayed the snippet. Nope, she actually said it. Her argument is that the loan money is being paid with after tax dollars, and somehow she equates that to double taxation.
What she seems to be ignoring is that the money in the fund was deposited pretax. So the money being used to pay it back is no different than paying back a traditional loan with after tax dollars. It has no impact on the taxes that were deferred on the original deposit.
What she also ignores is that the interest on a 401K loan is being paid back to yourself. So in effect, it's a loophole that allows someone to contribute more than $17,500 into a 401K per year, by contributing the entire $17,500 through payroll deposits, and then contributing the interest into the account on top of those funds. And the interest is money you are paying to yourself, not a lending institution.
So if you need to take out a loan and have the funds to do so in your 401K, I think it's a great option. You may run into trouble if you leave the company you are working for and may have to pay it back within 60 days, but otherwise it's a great deal.
As for Suze, I still enjoy watching her show and find it interesting to see the smattering of callers who present their various financial issues. But I was left seriously wondering, doesn't anyone double check what Suze tells these people just to prevent her from embarrassing herself and saying things that are completely ludicrous?