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My wife got a new job, and we need a second car. I'm interested in financing, but my I'm a fed and TSP offers me the ability to loan myself money from my retirement account. To quote from the brochure: quote:When you borrow from your TSP account, the loan is disbursed proportionally from any traditional (non-Roth) and Roth balances in your account. Similarly, if you are a uniformed services employee with tax-exempt contributions in your traditional balance, your loan will contain a proportional amount of tax-exempt contributions as well. If your TSP account is invested in more than one fund, your loan is deducted proportionally from the employee contributions (and earnings on those contributions) that you have in each fund. Your total account balance is decreased by the amount of your loan. Rate's 2.125%. Does it make more sense to do this than go through a bank, given that I'd at least be paying myself interest instead of a bank? The significant downside is that I'm loaning myself pre-tax dollars and paying myself back post-tax dollars.
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Nov 30, 2014 03:56
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| # ? Apr 26, 2024 02:02 |
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You will lose out on market gains. Never take loans from your retirement. Don't be a poor American. Buying a car requires cash. Pay cash for cars. If you only have 5k cash to put down on a car, you need to buy a 5k car. If you only have 1k, guess what, you need a 1k car. SiGmA_X fucked around with this message at 18:32 on Nov 30, 2014 |
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Nov 30, 2014 05:09
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The cost of a TSP loan is as follows: 1.) You lose the potential gains of the money you took out during the repayment period. This decreases as you pay back the loan but would increase your effective interest rate from -2.25 (negative since you're paying it to yourself) to maybe +3% or more, assuming you're invested in stocks 2.) You repay the loan with POST-TAX dollars. When you take this money out after you retire, it's taxed again.
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Nov 30, 2014 05:11
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Apples to apples, any loan I take is being paid back with post tax dollars, and I'm not too concerned with the productivity of my account; it is still growing at 2% interest, and although I forego higher gains, I'm insulated from loss. At 2% anyway, the "don't finance" adage seems to lose its power: $300 interest a year over 5 years ain't poo poo when you make $58/hr.
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Nov 30, 2014 17:31
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WhiskeyJuvenile posted:Apples to apples, any loan I take is being paid back with post tax dollars, and I'm not too concerned with the productivity of my account; it is still growing at 2% interest, and although I forego higher gains, I'm insulated from loss. I would surely go with a bank note if you can't cash flow it. You're losing market gains and paying a higher rate that you would get from a bank. Unless you have horrid credit, which I guess could be a fair assumption based on being flat broke and making 120k/yr+...
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Nov 30, 2014 18:28
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"yes, let me sell stocks instead of paying sub-2% APR" said no one ever
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Dec 1, 2014 04:19
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It's basically a bad habit to raid retirement accounts for cash.
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Dec 1, 2014 04:54
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WhiskeyJuvenile posted:"yes, let me sell stocks instead of paying sub-2% APR" said no one ever And you ARE selling stocks to take a sub-2% loan by doing this. While you could do the same with a credit union, and NOT sell your stocks. But that doesn't change the fact that you can't afford the car and should save up for it. Its just a car, and its ~12% of your salary. That should be pretty easy to cover with cash. SiGmA_X fucked around with this message at 07:02 on Dec 1, 2014 |
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Dec 1, 2014 06:04
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This seems like a pointless thread because it seems you already made up your mind before posting it.
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Dec 1, 2014 07:39
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Not to mention thanks to Uncle Sam, credit is cheap right now. With good credit you can expect to pay 2% to 3% for a auto loan, which wouldn't involved raiding retirement savings.
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Dec 1, 2014 07:48
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etalian posted:Not to mention thanks to Uncle Sam, credit is cheap right now. if he makes 120k/yr and still can't afford a car his credit is probably poo poo
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Dec 1, 2014 14:59
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my credit was 840, but thanks anyway: a) I already bought the car at 1.95% bank note b) saving up wasn't an option because I needed the car in a week because my wife got a job offer out of the blue that pays $17k more but will require her to commute via car instead of public transit and it starts on the 8th Purchase price of $20k My options were: 1) Pay cash, which would have meant using 3 months' worth of 6 months' expenses of cash on hand 2) Sell stocks, foregoing market gains on that money until it's replenished over time (although I'll get market on income as I invest it, I probably wouldn't replace the full $20k for about a year given planned future expenses for the upcoming year for home improvements) 3) Loan from TSP, foregoing market gains on that money for 2.1% starting immediately 4) Bank loan, cost of loan over lifetime of loan is $800 I did 4. I can always go back and do any of 1-3 to pay off the bank note immediately.
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Dec 1, 2014 15:22
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Where can I find guaranteed market gains all you people keep referencing? Am I to assume the market only goes up forever at 3.5%? You are confusing me.
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Dec 1, 2014 15:46
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This forum doesn't handle people with money as well as it does people without money (shocked no one interrogated you about your phone bill) Personally, I would have taken it in cash out of the emergency fund. You technically aren't suppose to dip into that, but assuming you have a stable government job with ample savings and investments, I'd take $800 to take the risk of only having 3 vs 6 months cash on hand for (what a year, Half a year, less with two incomes). If things go south it sounds like you have a number of other backstops. Its allowing leverage like that which makes having money nice. You can do more efficient things with less risk than the average person.
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Dec 1, 2014 19:07
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only concern I have with that would be possible government shutdown affecting my paycheck
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Dec 1, 2014 19:22
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Rudager posted:This seems like a pointless thread because it seems you already made up your mind before posting it. I'm not really sure why this thread exists either. WhiskeyJuvenile posted:only concern I have with that would be possible government shutdown affecting my paycheck Luckily, the Republicans have taken back control and will reign in ridiculous government spending, including paying you $58/hr. Maybe don't blow your emergency fund just yet.
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Dec 1, 2014 21:46
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| # ? Apr 26, 2024 02:02 |
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Elephanthead posted:Where can I find guaranteed market gains all you people keep referencing? Am I to assume the market only goes up forever at 3.5%? You are confusing me. For a 20k car using the retirement money piggybank option the dividends alone tend to pay 2 to 3 percent along with any market gain for the year. It's why using retirement accounts for piggybank and loan is not recommended financial advisors. Assuming you have good credit being able to get a low cost loan is the preferable option.
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Dec 2, 2014 01:45
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