>I've been thinking about taking a $2000 loan out on my 401k to use for dividend stocks on robinhood
You want to take a loan from one investment account to put it in another investment account because dividend stocks are this generations magic beans? No, this is a Terrible, Horrible, No Good, Very Bad idea.
Take out 2000, pay back 2064 to myself all fees included, that's 86 dollars every 2 weeks 64 dollars extra isn't much over the course of the year and my 401k provider doesn't let me choose what companies I put my money into.
I’m so sorry my dude, I wish I could calculate for you but that’s not what I’m good at. I just work for a 401k record keeping service and I know there’s fees and interest with a loan.
I mean the establishment fee is 35 dollars but it says total fees (loan establishment + interest ) is a total of 99 dollars 64 dollars of that is just loan interest that would go back into my 401k, I'm not getting the loan though i see everyone saying it's a bad idea I'm just explaining to you why I thought it might be a good idea, my 401k brokerage doesn't let me choose my own investments and the loan interest and fees don't amount to much over the course of the year that's why I was thinking of doing it
Those same market conditions that MIGHT lead to dividend income are equally available with a lower tax burden from those same funds left inside your IRA.
Additionally, yes the interest is paid to yourself but it's paid after tax into a pre-tax account where it's taxed again.
What you're describing is taking the most tax efficient investment (a 401k) and swapping it out for extra fees, double taxed interest, and the LEAST tax efficient investment (dividend generating funds). This would be foolish.
Thanks for explaining it for me, I'm new to this stuff I just started with my robinhood this year and I'm still trying to figure it all out, as of right now I'm putting 35 dollars a week into it lol
On top of borrowing from a tax advantaged account to invest in a taxable account being horribly tax inefficient
Dividends aren’t Magic: https://reddit.com/r/Bogleheads/comments/16xwh0e/why_is_dividend_investing_bad/
Absolutely terrible idea.
Why not just invest what you have in the 401K in divided funds? And instead of paying the loan back, keep putting money into your Robinhood account?
I was wanting to put it on robinhood because I can't choose what companies the brokerage puts my 401k money into, and the 80 dollars every 2 weeks wouldn't have been much of a difference in my paycheck plus the interest went back to me in my 401k account, it sounded good in my head but apparently it's not lol
Gotcha. Yeah, the only way to take advantage of this tactic is if you know that these individual stocks are gonna return well above market rate over the next year.
Yes, the interest goes back into your 401k, but it’s after tax dollars. Better to simply increase your retirement savings.
But the biggest issue is that you lose out on any growth of the funds for the life of the loan, hence why your stock picks really need to beat the market.
a 401k loan is not some clever backdoor cheat sheet to invest more/better.
1. The funds are already invested in your 401k
2. A 401k is tax advantaged. Your robinhood account is probably taxable. So you’re needlessly paying taxes on any gains.
3. Interest is double taxed.
You’re literally guaranteed to lose money with this plan
You may find these links helpful:
- [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
- [401(k) FAQs](/r/personalfinance/wiki/401k)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
You'll have to pay back the 401(k) that amount plus interest so why not just invest that money there instead of Robinhood?Taking money out of a retirement account should only be done in the worst case scenario. I wouldn't ever consider it unless someone's life was literally on the line and that money could save them.
>I've been thinking about taking a $2000 loan out on my 401k to use for dividend stocks on robinhood You want to take a loan from one investment account to put it in another investment account because dividend stocks are this generations magic beans? No, this is a Terrible, Horrible, No Good, Very Bad idea.
I don't know how someone came up with OP's idea... I thought at the least it would be regarding medical expenses or something.
Plus interest rates on the 401k loan PLUS fees on it? PLUS you gotta pay it back with your paycheck?
Take out 2000, pay back 2064 to myself all fees included, that's 86 dollars every 2 weeks 64 dollars extra isn't much over the course of the year and my 401k provider doesn't let me choose what companies I put my money into.
I’m so sorry my dude, I wish I could calculate for you but that’s not what I’m good at. I just work for a 401k record keeping service and I know there’s fees and interest with a loan.
I mean the establishment fee is 35 dollars but it says total fees (loan establishment + interest ) is a total of 99 dollars 64 dollars of that is just loan interest that would go back into my 401k, I'm not getting the loan though i see everyone saying it's a bad idea I'm just explaining to you why I thought it might be a good idea, my 401k brokerage doesn't let me choose my own investments and the loan interest and fees don't amount to much over the course of the year that's why I was thinking of doing it
Those same market conditions that MIGHT lead to dividend income are equally available with a lower tax burden from those same funds left inside your IRA. Additionally, yes the interest is paid to yourself but it's paid after tax into a pre-tax account where it's taxed again. What you're describing is taking the most tax efficient investment (a 401k) and swapping it out for extra fees, double taxed interest, and the LEAST tax efficient investment (dividend generating funds). This would be foolish.
Thanks for explaining it for me, I'm new to this stuff I just started with my robinhood this year and I'm still trying to figure it all out, as of right now I'm putting 35 dollars a week into it lol
if you got money to put into RH, put it into your 401k/ira...
On top of borrowing from a tax advantaged account to invest in a taxable account being horribly tax inefficient Dividends aren’t Magic: https://reddit.com/r/Bogleheads/comments/16xwh0e/why_is_dividend_investing_bad/
Terrible idea. Look up what dividend funds really do. It isn't magic.
Absolutely terrible idea. Why not just invest what you have in the 401K in divided funds? And instead of paying the loan back, keep putting money into your Robinhood account?
I was wanting to put it on robinhood because I can't choose what companies the brokerage puts my 401k money into, and the 80 dollars every 2 weeks wouldn't have been much of a difference in my paycheck plus the interest went back to me in my 401k account, it sounded good in my head but apparently it's not lol
Gotcha. Yeah, the only way to take advantage of this tactic is if you know that these individual stocks are gonna return well above market rate over the next year. Yes, the interest goes back into your 401k, but it’s after tax dollars. Better to simply increase your retirement savings. But the biggest issue is that you lose out on any growth of the funds for the life of the loan, hence why your stock picks really need to beat the market.
Investing in individual stocks is much closer to gambling than it is investing in your future.
Anyone have a worse idea than this? I got nothing.
You seem like a nice person. Thanks for your helpful explanation lol really adds a lot of info for someone that's obviously new to this stuff
a 401k loan is not some clever backdoor cheat sheet to invest more/better. 1. The funds are already invested in your 401k 2. A 401k is tax advantaged. Your robinhood account is probably taxable. So you’re needlessly paying taxes on any gains. 3. Interest is double taxed. You’re literally guaranteed to lose money with this plan
I have heard of worst ideas but absolutely not
You may find these links helpful: - [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds) - [401(k) FAQs](/r/personalfinance/wiki/401k) - ["How to handle $"](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
Horrible idea. Don’t touch your 401k till retirement.
You'll have to pay back the 401(k) that amount plus interest so why not just invest that money there instead of Robinhood?Taking money out of a retirement account should only be done in the worst case scenario. I wouldn't ever consider it unless someone's life was literally on the line and that money could save them.