12-04-2021, 03:23 PM
any flaws in this plan? loan on my 401k
<!-- SC_OFF --><div class="md"><p>recently learned A. i could take loans on 401k, and B. discovered waht I bonds are</p> <p>I bonds = protects buying power by providing an interest rate based on the last 6 months inflation, the current rate on i-bonds is 7.12% and get adjusted every 6 months, i understand the number could go down on me but with how things are going i dont think its likely inflation is going to slow down in the next bit, and even if it does i wont actually lose money unless the rate becomes sub .5% which isn't going to happen. maximum amount you can own is 10k (more if you get paper bonds through your tax return but that's another discussion)</p> <p>my 401k is through fidelity, i can take out loan with a 5.25% interest rate for 12 to 60 months and from what I understand the interest paid actually goes into my 401k, so its technically not really a fee just mandatory additional deposit into my savings, they DO mention a 50 dollar setup fee when I use their loan calculator though.</p> <p>plan:</p> <ol> <li>take out loan on 401k for 12 months</li> <li>invest the loan into a 12 month ibond</li> <li>pay the bi-monthly loan payments, reimburse myself when the I-bond matures in 12 months</li> </ol> <p>Expected results (Using current I-bond rate):</p> <p>$712 total earnings from I-bond</p> <p>$525 of that will be put into the 401k (the interest paid on the loan)</p> <p>-$50 dollar loan fee</p> <p>summary: extra $525 invested into my 401k, $137 in pocket. Total profit of $662 with 0% risk (i will easily cover the loans monthly bill)</p> <p>I understand this isn't much but I like to maximize my financial opportunities</p> <p>Questions:</p> <ol> <li>how does paying loans early work? could I do the max timeframe on the 401k loan (60 months) but pay it in full at the 12 month mark when the I-bond matures? I'd like to minimize the monthly payments as much as possible but I don't know if this has a downside or can even be done</li> <li>am i right that the 5.25% interest on the fidelity loan goes into my 401k and thus is really just more savings for me as im not actually losing money by paying it?</li> </ol> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Dragnskull"> /u/Dragnskull </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/r8jdlf/any_flaws_in_this_plan_loan_on_my_401k/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/r8jdlf/any_flaws_in_this_plan_loan_on_my_401k/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>recently learned A. i could take loans on 401k, and B. discovered waht I bonds are</p> <p>I bonds = protects buying power by providing an interest rate based on the last 6 months inflation, the current rate on i-bonds is 7.12% and get adjusted every 6 months, i understand the number could go down on me but with how things are going i dont think its likely inflation is going to slow down in the next bit, and even if it does i wont actually lose money unless the rate becomes sub .5% which isn't going to happen. maximum amount you can own is 10k (more if you get paper bonds through your tax return but that's another discussion)</p> <p>my 401k is through fidelity, i can take out loan with a 5.25% interest rate for 12 to 60 months and from what I understand the interest paid actually goes into my 401k, so its technically not really a fee just mandatory additional deposit into my savings, they DO mention a 50 dollar setup fee when I use their loan calculator though.</p> <p>plan:</p> <ol> <li>take out loan on 401k for 12 months</li> <li>invest the loan into a 12 month ibond</li> <li>pay the bi-monthly loan payments, reimburse myself when the I-bond matures in 12 months</li> </ol> <p>Expected results (Using current I-bond rate):</p> <p>$712 total earnings from I-bond</p> <p>$525 of that will be put into the 401k (the interest paid on the loan)</p> <p>-$50 dollar loan fee</p> <p>summary: extra $525 invested into my 401k, $137 in pocket. Total profit of $662 with 0% risk (i will easily cover the loans monthly bill)</p> <p>I understand this isn't much but I like to maximize my financial opportunities</p> <p>Questions:</p> <ol> <li>how does paying loans early work? could I do the max timeframe on the 401k loan (60 months) but pay it in full at the 12 month mark when the I-bond matures? I'd like to minimize the monthly payments as much as possible but I don't know if this has a downside or can even be done</li> <li>am i right that the 5.25% interest on the fidelity loan goes into my 401k and thus is really just more savings for me as im not actually losing money by paying it?</li> </ol> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/Dragnskull"> /u/Dragnskull </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/r8jdlf/any_flaws_in_this_plan_loan_on_my_401k/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/r8jdlf/any_flaws_in_this_plan_loan_on_my_401k/">[comments]</a></span>Kind Regards R