Author Topic: Pay off 401k Loan - lump sum?  (Read 1432 times)

better late

  • Bristles
  • ***
  • Posts: 322
Pay off 401k Loan - lump sum?
« on: January 30, 2018, 10:15:20 PM »
We have approximately $25,000 left on a 401k loan. This spring we will likely be in a position to pay it off in a lump sum.  Is there any reason we shouldn't do so?  It seems pretty straightforward to me, but maybe I'm missing something.
I would be happy to furnish more information, but not sure what might come into consideration with this.

MDM

  • Walrus Stache
  • *******
  • Posts: 9496
Re: Pay off 401k Loan - lump sum?
« Reply #1 on: January 30, 2018, 10:21:44 PM »
This spring we will likely be in a position to pay it off in a lump sum.  Is there any reason we shouldn't do so?
Assuming the 401k has reasonable expense ratios, and by "in a position to pay it off" you mean "have enough money both to pay the 401k loan and retain a suitable (however you define that) emergency fund" - then "no."

better late

  • Bristles
  • ***
  • Posts: 322
Re: Pay off 401k Loan - lump sum?
« Reply #2 on: January 30, 2018, 10:25:55 PM »
This spring we will likely be in a position to pay it off in a lump sum.  Is there any reason we shouldn't do so?
Assuming the 401k has reasonable expense ratios, and by "in a position to pay it off" you mean "have enough money both to pay the 401k loan and retain a suitable (however you define that) emergency fund" - then "no."
Expense ratios are good in 401k and yes, our emergency fund would still be in good shape.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10480
  • Age: 61
  • Location: NorCal
Re: Pay off 401k Loan - lump sum?
« Reply #3 on: January 30, 2018, 10:39:23 PM »
Every second your $25k is out of the market, it's out of the market. With the wild runup of late, you've "lost" quite a bit. You can either jump back in the market by paying it off now or wait until the after the impending market dump. That would be market timing, which is a big no-no. It would also require a crystal ball, which I do not have handy. (Don't worry, I am not saying "Top is in." I really have no idea.)

What I do know is that many of these loans are callable upon separation from your employer. I once borrowed $6k from my 401k as a bridge loan between a home purchase and home sale. I made a killing on the second property, but damn, I felt like an indentured servant for every second of the nine months it took me to pay back the loan. It totally sucked. You can't even think about getting another job.

That's why I advocate paying it off and never doing this again. I still wish I'd swallowed my pride and asked my parents for a loan. But they're gone now, and I'm FIRE, in part because of that RE transaction. I still consider it my biggest financial mistake.

What I know for sure is that YMMV. Good luck, whatever you decide.

Raenia

  • Handlebar Stache
  • *****
  • Posts: 1076
Re: Pay off 401k Loan - lump sum?
« Reply #4 on: January 31, 2018, 06:54:12 AM »
I agree, pay it off as soon as possible.  There's no reason to keep it hanging over your head, and you want that money in the market asap.

better late

  • Bristles
  • ***
  • Posts: 322
Re: Pay off 401k Loan - lump sum?
« Reply #5 on: January 31, 2018, 08:11:37 PM »
Thanks all for the responses - pretty unanimous.

Taking out the loan was the last thing we did when we were reorganizing/changing our life a few years ago. I would never do that again.

Knowing that the loan would be callable if we were to lose that earner's job and income, when we would most need our cash, has been a big mental weight.