1 00:00:00,000 --> 00:00:03,630 INTRO: Hi, I'm Ed Slott, and I'm Jeff Levine, and we are two guys who just 2 00:00:03,630 --> 00:00:06,090 love to talk about retirement and taxes. 3 00:00:06,120 --> 00:00:10,050 Look, our mission is simple to educate you, the savers, so that you can make 4 00:00:10,050 --> 00:00:14,130 better decisions because better decisions on the whole lead to better outcomes. 5 00:00:14,190 --> 00:00:15,780 And here's how we're going to do that. 6 00:00:15,840 --> 00:00:20,010 Each week, Jeff and I will debate the pros and the cons of a particular 7 00:00:20,015 --> 00:00:22,880 retirement strategy or topic with the. 8 00:00:23,215 --> 00:00:25,915 Helping you keep more of your hard-earned money. 9 00:00:26,035 --> 00:00:29,425 Yeah, but we won't know which side of the debate we're taking until we flip 10 00:00:29,425 --> 00:00:33,205 a coin winner of the coin flip gets to pick which side of the debate they want 11 00:00:33,205 --> 00:00:38,015 to argue, and both of us will have to argue in favor of our respect positions, 12 00:00:38,185 --> 00:00:40,465 whether we agree with them or not. 13 00:00:40,525 --> 00:00:45,144 At the end of each debate, there's going to be one clear winner you, a more 14 00:00:45,144 --> 00:00:49,075 informed saver who can hopefully apply the merits of each side of the debate to your 15 00:00:49,075 --> 00:00:51,114 own personal situation to decide what's. 16 00:00:51,425 --> 00:00:52,714 For you and your family. 17 00:00:52,834 --> 00:00:53,675 So here we go. 18 00:00:53,675 --> 00:00:55,985 Welcome to the Great Retirement Debate! 19 00:01:02,025 --> 00:01:05,625 Jeffrey Levine: Hey, welcome back to the Great Retirement Debate, ed. 20 00:01:05,895 --> 00:01:08,415 Good to be back with you for our latest episode. 21 00:01:08,715 --> 00:01:09,225 Ed Slott: That's right. 22 00:01:09,225 --> 00:01:10,815 Great retirement debate. 23 00:01:10,815 --> 00:01:11,295 The winner. 24 00:01:11,295 --> 00:01:12,765 Is everybody listening. 25 00:01:13,335 --> 00:01:15,525 Jeffrey Levine: Well, what are we debating today, ed? 26 00:01:16,305 --> 00:01:19,785 Ed Slott: Uh, whether somebody should borrow from their 401k or not, 27 00:01:19,785 --> 00:01:21,855 especially in these economic times. 28 00:01:21,855 --> 00:01:25,185 People see a big account there and they say, you know, I need money. 29 00:01:25,245 --> 00:01:26,815 Maybe I should tap into that. 30 00:01:27,175 --> 00:01:29,175 Jeffrey Levine: Well, maybe they should, maybe they shouldn't. 31 00:01:29,235 --> 00:01:29,985 We'll find out. 32 00:01:30,404 --> 00:01:32,865 So your topic, I get to pick the coin. 33 00:01:32,865 --> 00:01:35,115 Flip, uh, I'm gonna go tails today. 34 00:01:35,115 --> 00:01:36,524 Ed, I gotta say tails. 35 00:01:36,524 --> 00:01:37,544 And let's flip that coin. 36 00:01:37,604 --> 00:01:38,714 Ed Slott: Alright, uh, here we go. 37 00:01:38,714 --> 00:01:39,434 Real coin. 38 00:01:42,074 --> 00:01:42,405 Heads. 39 00:01:42,975 --> 00:01:43,574 Jeffrey Levine: Heads. 40 00:01:43,574 --> 00:01:46,544 All right, well you get to, you get to make the choice, ed. 41 00:01:47,310 --> 00:01:50,160 Ed Slott: Uh, I'd like, or I'm gonna go with the easy one. 42 00:01:50,160 --> 00:01:54,280 At least in my, I'm, I'm going say, don't borrow from a 401k. 43 00:01:54,510 --> 00:01:54,960 Jeffrey Levine: All right. 44 00:01:54,990 --> 00:02:00,960 That means I am arguing for taking a loan from your four Ed, you could lead us off. 45 00:02:00,960 --> 00:02:01,890 Why shouldn't you? 46 00:02:01,890 --> 00:02:03,270 You seem pretty passionate about this. 47 00:02:03,270 --> 00:02:05,410 Why wouldn't you take money from your 401k? 48 00:02:05,920 --> 00:02:09,009 Ed Slott: Well first again, we say, you know, if you are listening 49 00:02:09,009 --> 00:02:10,419 to this, there are two sides. 50 00:02:10,690 --> 00:02:14,170 Like we flip, flip the coin of every argument and people 51 00:02:14,170 --> 00:02:15,579 might be thinking about this. 52 00:02:15,730 --> 00:02:20,650 I never liked the idea borrowing from a retirement account, uh, only because. 53 00:02:20,820 --> 00:02:25,200 Unless it's your absolute last resort, I mean, it takes years to build a good 54 00:02:25,200 --> 00:02:29,070 retirement savings plan, a little at a time, a week at a time, month at a 55 00:02:29,070 --> 00:02:31,500 time, and then you just take it out. 56 00:02:31,500 --> 00:02:36,329 It's the hardest money to replace, and if you use it before retirement, 57 00:02:36,329 --> 00:02:38,820 what's going to be left in retirement. 58 00:02:39,000 --> 00:02:41,190 So those are the main things I worry about. 59 00:02:41,190 --> 00:02:42,630 Now, I'll turn it over to you. 60 00:02:42,630 --> 00:02:44,399 Why for the other side of the. 61 00:02:45,300 --> 00:02:48,090 Jeffrey Levine: Well, I mean, I, I would say at the starters, if you're 62 00:02:48,090 --> 00:02:51,630 looking to take a loan from your 401k, you probably need the money. 63 00:02:52,050 --> 00:02:55,650 And so it's not so much a matter of, do I take it? 64 00:02:55,650 --> 00:02:57,240 It's where do I get it from? 65 00:02:57,240 --> 00:02:59,700 And the question is, where else could you get it? 66 00:02:59,700 --> 00:03:01,410 Are you gonna borrow from family? 67 00:03:01,410 --> 00:03:03,540 Well, that we know can be very messy. 68 00:03:03,990 --> 00:03:08,369 And one of the great things about a 401k loan is that, you're 69 00:03:08,369 --> 00:03:10,270 getting money tax free, right? 70 00:03:10,270 --> 00:03:13,540 In a lot of places, if you were going to get, if you were gonna need dollars, 71 00:03:13,540 --> 00:03:18,040 right, you could take a distribution from your 401k or distribution from your ira. 72 00:03:18,040 --> 00:03:22,120 But if you're under 59 and a half, not only would you have income tax, but you 73 00:03:22,120 --> 00:03:24,550 could have a 10% penalty on top of that. 74 00:03:24,555 --> 00:03:29,230 Whereas if you take a loan from your 401k, you're actually able to access 75 00:03:29,230 --> 00:03:31,930 that money without paying an income tax. 76 00:03:31,930 --> 00:03:33,730 Just like any other loan you would take. 77 00:03:34,650 --> 00:03:37,635 Ed Slott: You know, I've heard that argument, but in real life I've 78 00:03:37,635 --> 00:03:40,815 had clients that did that in the past and it didn't work out well. 79 00:03:41,175 --> 00:03:41,925 Uh, it's true. 80 00:03:41,925 --> 00:03:44,355 They were in the same situation you are talking about. 81 00:03:44,655 --> 00:03:46,845 Uh, they had no other money. 82 00:03:46,875 --> 00:03:50,745 Now, this was a bad case because they, it was a second marriage for 83 00:03:50,745 --> 00:03:53,645 both of them, and they wanted to use the money for their wedding. 84 00:03:53,705 --> 00:03:57,515 I mean, you know, second marriage, I don't call that essential. 85 00:03:57,970 --> 00:04:01,810 You know, I gave him the advice and they didn't listen to me. 86 00:04:01,810 --> 00:04:02,800 So they took money. 87 00:04:02,800 --> 00:04:05,770 The husband, it was the one that had the 401k, took money out of 88 00:04:05,770 --> 00:04:09,250 his, he borrowed from his 401k cause he had a balance there. 89 00:04:09,670 --> 00:04:11,260 And then he, he couldn't pay it back. 90 00:04:11,620 --> 00:04:14,920 Uh, and then all of a sudden it becomes a taxable distribution. 91 00:04:14,920 --> 00:04:19,120 And the very penalty you're talking about being worried about, uh, he got hit with. 92 00:04:19,490 --> 00:04:23,150 Plus when they had to pay the tax, they didn't have money cuz they 93 00:04:23,150 --> 00:04:25,130 spent all the money on the wedding. 94 00:04:25,490 --> 00:04:27,560 Uh, so there was almost no intention. 95 00:04:27,560 --> 00:04:31,760 Maybe there was an intention, but there wasn't an ability to pay it back. 96 00:04:31,760 --> 00:04:34,550 That's why I said, you know, if you're gonna use it for food or 97 00:04:34,550 --> 00:04:35,840 shelter, something like that. 98 00:04:35,840 --> 00:04:40,250 But, uh, and I'm not saying the, the big wedding, and it wasn't even a big 99 00:04:40,250 --> 00:04:43,670 wedding, but they wanted to do something and there was no other money available. 100 00:04:43,670 --> 00:04:45,000 I advised against it. 101 00:04:45,330 --> 00:04:48,659 But the, uh, if you can't pay it back, it's a real problem. 102 00:04:48,659 --> 00:04:52,500 And I find a lot of people, although there are schedules and some people 103 00:04:52,500 --> 00:04:56,550 may be able to pay it back, I find most people, at least in my experience that 104 00:04:56,820 --> 00:05:00,810 did this, were not able to pay it back and had to suffer the consequences. 105 00:05:00,840 --> 00:05:02,669 Jeffrey Levine: Well, let's talk about that schedule for a moment, 106 00:05:02,669 --> 00:05:06,300 because a lot of times when people borrow money for emergencies, they're 107 00:05:06,300 --> 00:05:08,099 typically short-term loans, right? 108 00:05:08,099 --> 00:05:10,680 They might borrow some money from a family member's like, wait, 109 00:05:10,680 --> 00:05:12,200 I'll hit you back next month. 110 00:05:12,430 --> 00:05:14,605 Or I'll catch up with you over the next year. 111 00:05:14,605 --> 00:05:16,285 Well, that's a short period of time. 112 00:05:16,615 --> 00:05:22,645 And while not 30 years, like let's say a mortgage, with the exception of some, 113 00:05:22,735 --> 00:05:27,775 uh, some loans that are used to purchase a home, there's a five year timeframe in 114 00:05:27,775 --> 00:05:29,965 which you can pay back those 401k loans. 115 00:05:29,965 --> 00:05:30,715 So even though it's not. 116 00:05:30,885 --> 00:05:34,995 You know, 10, 20, or even 30 years, like many mortgages might be, uh, 117 00:05:34,995 --> 00:05:37,905 you are looking at a period of time that's dramatically longer than a 118 00:05:37,905 --> 00:05:39,615 lot of short-term loans would be. 119 00:05:39,615 --> 00:05:43,185 Plus, uh, when you go to take out a loan, let's say you were looking 120 00:05:43,185 --> 00:05:46,335 at someplace else to get the money and you had a, a house already. 121 00:05:46,695 --> 00:05:50,265 Maybe you needed to make repairs or maybe you just need to pay for. 122 00:05:50,870 --> 00:05:53,690 You know, again, whatever it is, if you were to go for a loan 123 00:05:53,690 --> 00:05:56,810 from your house, you're probably paying loan origination fees. 124 00:05:56,810 --> 00:05:59,810 You're probably paying, you know, some sort of fees to the bank. 125 00:05:59,990 --> 00:06:04,370 Whereas if you take that money from your 401k, you are able to access that money 126 00:06:04,370 --> 00:06:08,270 without all those upfront costs that you would from other loan providers. 127 00:06:09,095 --> 00:06:13,685 Ed Slott: Yeah, I get that it's, uh, easier to obtain credit, but, uh, 128 00:06:13,685 --> 00:06:18,104 another problem with this, is it easier to take - even if you can pay it back? 129 00:06:18,104 --> 00:06:18,344 Okay. 130 00:06:18,349 --> 00:06:20,745 Let's say somebody's diligent and they'll be 131 00:06:20,745 --> 00:06:21,885 Jeffrey Levine: OK, someone's diligent. 132 00:06:22,215 --> 00:06:22,365 Ed Slott: Yeah. 133 00:06:23,354 --> 00:06:26,505 and, and it, you know, there's always good intentions, but you know 134 00:06:26,510 --> 00:06:28,155 what they say, the road, whatever. 135 00:06:28,224 --> 00:06:29,575 Is paved with good intentions. 136 00:06:29,965 --> 00:06:34,015 The intention is always to pay it back because if you don't pay it back, uh, 137 00:06:34,015 --> 00:06:37,885 your retirement account will forever be lower and won't provide you what 138 00:06:37,885 --> 00:06:40,825 you'll actually need in retirement. 139 00:06:41,184 --> 00:06:45,764 But, if you do, even if you do pay it back, I find the people that have paid 140 00:06:45,764 --> 00:06:47,904 it back, something else has suffered. 141 00:06:48,204 --> 00:06:50,004 They only have so much money. 142 00:06:50,004 --> 00:06:54,564 Remember, these are people that had financial issues, uh, emergencies, 143 00:06:54,564 --> 00:06:59,234 whatever it was, because otherwise they wouldn't be tapping a 401k. 144 00:06:59,239 --> 00:07:04,134 Hopefully they would look for other areas of credit if available, but now 145 00:07:04,254 --> 00:07:06,054 they have a limited amount to pay back. 146 00:07:06,054 --> 00:07:10,164 So they pay back because they wanna stay on the schedule, which means they 147 00:07:10,714 --> 00:07:16,554 probably don't have the disposable cash to continue making 401K contributions. 148 00:07:16,794 --> 00:07:20,574 So in that respect, you're replenishing, but you're not replenishing the 149 00:07:21,114 --> 00:07:22,254 contributions going forward. 150 00:07:22,734 --> 00:07:23,905 Jeffrey Levine: Ed, let me ask you a question. 151 00:07:24,714 --> 00:07:29,004 If I take out a loan from the bank, are they gonna give me that loan for free? 152 00:07:29,094 --> 00:07:33,264 I mean, besides origination cost, is there any other cost associated with that loan? 153 00:07:34,254 --> 00:07:37,764 Ed Slott: There's lots of costs associated with a bank loan, and sometimes you 154 00:07:37,769 --> 00:07:39,504 might not even be credit worthy. 155 00:07:39,715 --> 00:07:40,044 Jeffrey Levine: Okay. 156 00:07:40,044 --> 00:07:41,154 But let's just say I am. 157 00:07:41,244 --> 00:07:41,274 Okay. 158 00:07:41,274 --> 00:07:42,924 Is the bank gonna give it to me for free? 159 00:07:44,644 --> 00:07:47,134 Or am I gonna have to pay some sort of interest to, to have 160 00:07:47,134 --> 00:07:47,974 the privilege of borrowing? 161 00:07:47,974 --> 00:07:48,994 Ed Slott: No, of course you're gonna pay interest. 162 00:07:49,084 --> 00:07:49,294 Jeffrey Levine: Okay. 163 00:07:49,294 --> 00:07:52,174 If I borrow money from someplace else, am I gonna have to pay interest? 164 00:07:52,174 --> 00:07:52,814 Ed Slott: Is a trick question. 165 00:07:52,819 --> 00:07:52,984 Yeah. 166 00:07:53,174 --> 00:07:54,064 Loans have interest. 167 00:07:54,064 --> 00:07:58,024 There's no free, give me the name of that bank that hey, gives out the free money. 168 00:07:58,114 --> 00:08:00,694 Jeffrey Levine: Well, that's my point, because if I'm taking a 169 00:08:00,694 --> 00:08:03,424 401k loan, I am paying interest. 170 00:08:03,424 --> 00:08:06,474 But Ed, who do I pay that interest to? 171 00:08:07,135 --> 00:08:07,405 Ed Slott: All right. 172 00:08:07,429 --> 00:08:08,719 Here's the argument you pay. 173 00:08:08,719 --> 00:08:09,710 Jeffrey Levine: I pay it to me! 174 00:08:09,710 --> 00:08:10,760 Yes, that's right. 175 00:08:10,950 --> 00:08:13,280 Ed Slott: Back to your own 401k and that's an argument, 176 00:08:13,280 --> 00:08:14,690 but I can argue the other way. 177 00:08:15,049 --> 00:08:17,690 You all, you'll pay tax twice on that money. 178 00:08:17,690 --> 00:08:23,330 You have to pay tax, uh, on the money you made to, uh, get the money in. 179 00:08:23,539 --> 00:08:25,010 Well, you get a deduction for it. 180 00:08:25,010 --> 00:08:31,489 But when you want to make, uh, you'll need new money to, uh, make new contributions. 181 00:08:31,840 --> 00:08:34,569 Jeffrey Levine: Effectively you're saying to pay back the loan, I've gotta 182 00:08:34,569 --> 00:08:38,649 use after tax money that that goes into a 401k, that later on in retirement, 183 00:08:38,649 --> 00:08:40,819 when I take a real distribution, I've gotta pay tax on it again. 184 00:08:40,819 --> 00:08:41,180 Ed Slott: Right, right. 185 00:08:41,180 --> 00:08:41,770 So you pay tax. 186 00:08:41,950 --> 00:08:44,829 I don't, not twice on the same money, but you pay tax twice. 187 00:08:44,829 --> 00:08:45,940 That's the way I look at it. 188 00:08:45,940 --> 00:08:48,819 When people say, uh, give the same argument, that's 189 00:08:48,819 --> 00:08:50,260 probably number one argument. 190 00:08:50,260 --> 00:08:51,369 I've seen it in articles. 191 00:08:51,369 --> 00:08:54,190 Oh, pay yourself back interest now, instead of going to 192 00:08:54,190 --> 00:08:55,569 the bank, it goes to you. 193 00:08:55,569 --> 00:08:56,950 It goes to your 401k. 194 00:08:56,950 --> 00:08:57,940 The interest and it has- 195 00:08:57,940 --> 00:08:58,389 Jeffrey Levine: That's right. 196 00:08:58,750 --> 00:08:59,710 Ed Slott: Cause those are the rules. 197 00:09:00,060 --> 00:09:05,214 But you're still out that money and, uh, where are you gonna get the money to pay 198 00:09:05,214 --> 00:09:07,804 it back and to make future contributions? 199 00:09:08,125 --> 00:09:11,764 I don't like it as a planning tool that that's all unless 200 00:09:11,764 --> 00:09:13,885 it's an absolute last resort? 201 00:09:14,064 --> 00:09:15,744 Jeffrey Levine: Well, let's, let's go down that road. 202 00:09:15,744 --> 00:09:19,534 Let's just say I'm, I'm sitting there and I'm looking at my IRA or my 401k 203 00:09:19,554 --> 00:09:23,234 and where I'm gonna tap that money from and I have to get money from somewhere. 204 00:09:23,584 --> 00:09:27,425 I think the 401k is a much better option because there I can actually 205 00:09:27,425 --> 00:09:30,405 borrow that money, but what happens if I borrow money from my IRA, Ed? 206 00:09:31,375 --> 00:09:34,895 Ed Slott: Uh, you can't borrow from your IRA, that's a prohibited transaction. 207 00:09:34,895 --> 00:09:38,675 And uh, just cause you went down that road, I'll have to open that road up. 208 00:09:39,064 --> 00:09:40,994 Uh, you mentioned borrowing from your IRA. 209 00:09:41,135 --> 00:09:45,185 People think you can, you really can't, but there are articles 210 00:09:45,185 --> 00:09:49,294 about a so-called 60 day loan where you could take money from an IRA 211 00:09:49,300 --> 00:09:51,335 and roll it back within 60 days. 212 00:09:51,365 --> 00:09:53,625 Jeffrey Levine: It's just a fancy name for a 60 day reollover. 213 00:09:53,649 --> 00:09:54,099 Ed Slott: Right. 214 00:09:54,189 --> 00:09:58,869 But with IRAs, you can only do that once a year, every 12 months. 215 00:09:59,230 --> 00:10:02,709 If you, once you do a second one, you can't roll that back over, so 216 00:10:02,714 --> 00:10:07,149 that becomes a taxable distributions, it seems to me, with any kind of, 217 00:10:07,569 --> 00:10:09,459 so you can't borrow from your IRA. 218 00:10:09,464 --> 00:10:09,760 Yes. 219 00:10:09,760 --> 00:10:13,030 If you had to borrow 401k, at least it's available. 220 00:10:13,030 --> 00:10:17,619 It's not available from an IRA, but in any case, down the road. 221 00:10:17,619 --> 00:10:18,759 If you're looking long term. 222 00:10:18,759 --> 00:10:21,969 And I can understand if people say, well, I can't look long term. 223 00:10:21,969 --> 00:10:26,609 I need money now, I feel like that commercial, uh, I need cash now... 224 00:10:27,154 --> 00:10:27,929 Jeffrey Levine: Yes, yes, yes. 225 00:10:27,934 --> 00:10:29,279 Uh, JG Wentworth, I believe. 226 00:10:29,279 --> 00:10:29,619 Ed Slott: Yeah right. 227 00:10:29,889 --> 00:10:29,969 Yeah. 228 00:10:29,969 --> 00:10:34,424 Other than the JG Wentworth thing where I need cash now, uh, you 229 00:10:34,424 --> 00:10:36,114 know, that would be the case. 230 00:10:36,114 --> 00:10:38,859 But, uh, if there's nothing else available, it's, it 231 00:10:38,859 --> 00:10:40,179 should be a last resort. 232 00:10:40,249 --> 00:10:44,139 You're, you're hitting the, the account you're counting on in retirement. 233 00:10:44,139 --> 00:10:46,209 That's why they call it a retirement account. 234 00:10:46,509 --> 00:10:51,879 And you should do everything you possibly can to keep, not only, uh, keep that 235 00:10:51,879 --> 00:10:56,054 intact and not borrow from it, but keep contributing to it as much as possible. 236 00:10:56,474 --> 00:11:00,224 Jeffrey Levine: Well, all good points, but I would once again say that if I'm 237 00:11:00,224 --> 00:11:04,274 forced to take money from somewhere, it may be better to go into my 401k, then 238 00:11:04,274 --> 00:11:09,554 certainly better than my IRA may be better than having to go into my home to get 239 00:11:09,554 --> 00:11:14,774 money where I am going to pay origination fees, and I'm gonna be paying someone else 240 00:11:14,779 --> 00:11:19,384 interest, and I'm still gonna have to pay that back too, and it may be better than 241 00:11:19,384 --> 00:11:23,764 going to a family member where if I don't pay that back, you know, if I don't pay 242 00:11:23,764 --> 00:11:27,244 my 401K back, my penalty is financial. 243 00:11:27,574 --> 00:11:31,384 If I don't pay a family member back, my penalty is, well.. 244 00:11:31,414 --> 00:11:31,774 Ed Slott: Forever. 245 00:11:32,194 --> 00:11:32,674 Jeffrey Levine: Yes. 246 00:11:32,674 --> 00:11:33,694 It's, it is forever. 247 00:11:33,694 --> 00:11:33,904 Yeah. 248 00:11:34,474 --> 00:11:38,254 , uh, and, and, and so that may be worse, uh, ultimately, but look, I, 249 00:11:38,254 --> 00:11:42,334 I, I think one thing we, we certainly both agree on here is that retirement 250 00:11:42,334 --> 00:11:47,614 accounts as, uh, as a general rule of thumb, should be considered for 251 00:11:47,819 --> 00:11:50,039 retirement could be used for retirement. 252 00:11:50,399 --> 00:11:53,939 Um, and, you know, I'll, I'll throw one other item out here, ed, that is 253 00:11:53,939 --> 00:11:56,609 really, uh, in favor of the 401k loan. 254 00:11:56,659 --> 00:12:02,149 In lieu of that, someone might be tempted to put a, uh, a large purchase 255 00:12:02,149 --> 00:12:06,469 on a credit card or some other form of revolving line of credit and the 256 00:12:06,959 --> 00:12:11,149 interest rates there, it's amazing how they don't border on usery sometimes, 257 00:12:11,149 --> 00:12:14,449 you know, with 18, 19, 20% rates. 258 00:12:14,659 --> 00:12:17,679 So even if you are in a situation where you. 259 00:12:18,019 --> 00:12:21,799 You know, you're not even sure that you're gonna be able to pay back the 401k loan. 260 00:12:22,069 --> 00:12:22,939 It's not great. 261 00:12:23,119 --> 00:12:26,899 Not advocating for, not saying, Hey, let's try not to pay back that loan. 262 00:12:27,139 --> 00:12:32,299 But if my choice is take a 401k loan out and potentially default on it, or 263 00:12:32,299 --> 00:12:37,609 put money onto a credit card where I'm gonna have, you know, a 20% annual fee or 264 00:12:37,609 --> 00:12:40,309 annual interest plus penalties each month. 265 00:12:40,309 --> 00:12:43,819 If I can't make my minimum payments or whatnot, I might just wanna bite the 266 00:12:43,819 --> 00:12:47,689 bullet, you know, suck it up for the time being, see my retirement account 267 00:12:47,694 --> 00:12:52,429 reduced, and then go about trying to improve my life, improve my financial 268 00:12:52,434 --> 00:12:56,629 situation, and build back that 401k later, because even though that 401K 269 00:12:56,629 --> 00:13:01,719 maybe less now, I might have a better ability to build it up in the future if 270 00:13:01,719 --> 00:13:05,289 I'm not paying those astronomically high interest rates that credit cards and other 271 00:13:05,289 --> 00:13:07,029 revolving lines of credit often charge. 272 00:13:07,624 --> 00:13:13,504 Ed Slott: That's true, but also I said it before, uh, if you default, you will not. 273 00:13:13,894 --> 00:13:16,864 You will have to pay, you'll have a taxable event. 274 00:13:17,254 --> 00:13:22,384 So let's say you withdrew, you'll borrowed a few thousand dollars, that becomes 275 00:13:22,384 --> 00:13:27,709 a taxable distribution, that can't be rolled over, by the way, with other 276 00:13:27,709 --> 00:13:33,709 money to an IRA, plus a 10% penalty if no other, uh, if you're under 59 and a half. 277 00:13:33,889 --> 00:13:35,269 So it can be very costly. 278 00:13:35,269 --> 00:13:38,029 That's 10 per, you're talking about interest rates. 279 00:13:38,034 --> 00:13:41,989 It's a 10% penalty if you're under 59 and a half plus the tax. 280 00:13:42,559 --> 00:13:42,739 Jeffrey Levine: Yeah. 281 00:13:42,739 --> 00:13:45,259 Well, at least it's only a 10% one time penalty. 282 00:13:45,529 --> 00:13:47,139 And if I have to pay it, you know what I could do, Ed?. 283 00:13:47,609 --> 00:13:49,684 I could just borrow more from my 401k. 284 00:13:50,644 --> 00:13:51,484 Ed Slott: Aye, aye aye.. 285 00:13:51,754 --> 00:13:54,844 Well, you know, you can make the decision for yourself. 286 00:13:54,844 --> 00:13:58,354 Everybody listening, that's why we're here for, but, uh, I'm not a 287 00:13:58,354 --> 00:14:01,594 big fan and I think, uh, Jeff just said it before, one thing we agree 288 00:14:01,594 --> 00:14:04,684 on retirement accounts should be for retirement, but life happens. 289 00:14:04,894 --> 00:14:05,164 Jeffrey Levine: That's right. 290 00:14:05,619 --> 00:14:05,979 That's right. 291 00:14:05,979 --> 00:14:06,489 That's fair. 292 00:14:06,519 --> 00:14:07,599 Yes, life happens. 293 00:14:07,929 --> 00:14:11,079 Um, well, ed, I think we've covered both sides of this pretty well, 294 00:14:11,349 --> 00:14:12,279 and so we can wrap it up here. 295 00:14:12,279 --> 00:14:16,359 And as we always say, there are two sides to every coin, but your life 296 00:14:16,419 --> 00:14:19,899 and your retirement decisions are too important to leave up to a coin flip. 297 00:14:20,319 --> 00:14:24,059 And that's why one thing that Ed and I always agree on, is making sure that 298 00:14:24,059 --> 00:14:27,539 you're talking through any big decision like this, like whether you should 299 00:14:27,544 --> 00:14:31,649 take a loan from your 401k or from someplace else with a knowledgeable 300 00:14:31,649 --> 00:14:35,279 financial advisor or tax professional, so that you can weigh the pros and 301 00:14:35,279 --> 00:14:39,449 the cons of different options against your specific goals and objectives. 302 00:14:39,929 --> 00:14:42,899 If you'd like to continue the discussion with Ed and I, we'd love to hear from you. 303 00:14:43,564 --> 00:14:47,294 You can reach Ed on Twitter using the handle @TheSlottReport. 304 00:14:47,314 --> 00:14:50,944 Again, that's the Slott Report with two Ts and you can reach out to 305 00:14:50,944 --> 00:14:53,474 me using the handle @CPAPlanner. 306 00:14:53,884 --> 00:14:56,194 Once again, that's @CPAPlanner. 307 00:14:56,404 --> 00:14:57,454 We'd love to hear from you. 308 00:14:57,454 --> 00:15:01,174 We'd love some of your thoughts on a future topic for discussion for us to 309 00:15:01,234 --> 00:15:03,574 debate, and we thank you for listening. 310 00:15:04,024 --> 00:15:04,384 Ed? 311 00:15:05,074 --> 00:15:05,434 Ed Slott: Yep. 312 00:15:05,434 --> 00:15:08,604 I will see you next time on the Great Retirement Debate! 313 00:15:08,604 --> 00:15:12,094 Outro: Jeffrey Levine is Chief Planning Officer for Buckingham Wealth Partners. 314 00:15:12,154 --> 00:15:15,334 This podcast is for informational and educational purposes only, and should 315 00:15:15,334 --> 00:15:18,604 not be construed as specific investment accounting, legal or tax advice. 316 00:15:18,634 --> 00:15:21,574 Certain information mentioned may be based on third party information, 317 00:15:21,574 --> 00:15:24,424 which may become outdated or otherwise superseded without notice. 318 00:15:24,454 --> 00:15:27,694 Third party information is deemed to be reliable, but it's accuracy and 319 00:15:27,694 --> 00:15:29,134 completeness cannot be guaranteed. 320 00:15:29,254 --> 00:15:32,284 The topic discussed in corresponding arguments are those of the speakers 321 00:15:32,464 --> 00:15:35,254 and may not accurately reflect those of Buckingham Wealth partners.