You two have no heart, during a difficult time like this. Heartless.
16 replies (most recent on top)
Per Fidelity, you get to pay off the loan AS IT HAS BEEN SET UP for the time frames ever after losing your job at ATT.
I have taken many many and have some active. Been lucky to time them on the high market values.
It is a great option if you plan it right/get lucky and improve credit scores and remove interest based debt.
The best part about the CARES withdraw option is that you can pay the money back into your own IRA which then means you didn't pay taxes on it and you can have access to the entire market, rather than the six or so funds ATT has to pick from.
I’m amazed at so many dumb responses to people just looking for information. If you are some what confident you’ll remain employed, the loan is best option. The interest you pay is to yourself and no penalties. Additionally it’s not reported on your credit like other loans would be. As already mentioned if you lose employment then you’ll need to pay back the balance with in 90 days or pay the 10% penalty on top of taxes as it will be treated as a distribution. If you’ve utilized your brokerage account within the 401k and picked decent stocks no reason your 401k would be a 101k. I’m up 22.70% YTD which financed my loan that I used to eliminate debt. However, I could be surplussed next month and would need to pay back or pay the taxes and penalty. There’s risk in anything you do so make the best choice based on your circumstance.
For those who may be confused about some of the comments regarding loans and withdrawals-
You can do either one.
The withdrawal, under the CARES act, does not need to be paid back even if you leave the company, although you CAN pay it back if you want , over the next 3 years and recover any taxes you paid out due to that $ being counted as income.
The LOAN, on the other hand, is a gamble in my opinion due to all the surpluses here. That money DOES have to be paid back, and you have a very, very, short window to pay it all back if you separate from the company.
I did a Cares withdrawal...
If you have been impacted by Covid, furlough, reduce hours etc.., the 10% early withdrawal penalty is waived. but it was taxed as income.
For a loan..
A loan wouldn't be taxed whether CARES qualified or not.
You can do it over the phone with Fidelity -takes 15 minutes.
Be aware - If you take out a 401k loan and are then terminated, your loan becomes due. If you can't pay it back, it will be considered a withdrawal and you will pay taxes and if applicable (based on age), penalties.
Good synopsis. Under CARES provision you can now withdraw up to 100K from the 401K (before age of 59 1/2) with no 10% penalty, and as you mention, you have up top 3 years to pay the taxes on it.
Folks should think long and hard about doing this beforehand.
I took a loan using it. They just have to read you a disclaimer saying that you agree you were financially impacted by COVID. They said they give you the money and when we file taxes we are responsible for saying either us or our spouse was impacted by COVID. If you say yes you were then they process the loan. Super simple.
Withdrawals are considered taxable “ordinary income”. Also there’s usually an additional 10% penalty when you do your taxes the following year if you were under 59 1/2 when you made the withdrawal. However, the CARES Act allows the 10% penalty to be waived for withdrawals made in 2020 if affected by Covid (up to $100k). Also the regular tax on ordinary income can be spread evenly over the next 3 years.
Loans on the other hand are not considered taxable income. This is because you will be making payments back to your 401k account (via payroll deduction). Although there is interest built into the payment, that interest also goes to your account (basically borrowing money from yourself). Interest is probably pretty low right now since the Fed rate is so low right now.
One downside to a 401k loan is if you terminate your employment, you may be required to pay it all back that same year Depending on how much $$ you still have in your 401k account. If not paid back you will receive a 1099R reporting it as taxable income in the year you terminate. The rule used to be that your 401k needed to have at least $5k in the account for Fidelity to continue monthly payment plan if you terminated your employment and still had a loan balance. Not sure if that is still the rule today, but most likely it still applies.
You should call Fidelity and speak to a rep who will explain what your options are. It really depends on how much you need to borrow. I think max is something like $50k but no more than 50% of your balance. That was 20 years ago (Mobility management) last time I took out a loan so not sure if it’s changed since then. Just give Fidelity a call
Fortunately for me, I have a 801K, and can afford taking out a loan or do an early withdrawal. Those that have a 201K and 101K, while some are at 51Ks are SOL.
Why don’t you call Fidelity and find out what they need. I’d start there. Do you really think the ppl on this thread will give you better info?
Yes don't do it, if your 401K is now a 101K.
Don’t do it if at all possible. You could really screw yourself later on with your taxes if you’re not careful.
Go to netbenefits.com/att
You dont need to call any number. It's fairly easy to get your loan.
There are some requirements you must meet before you can get the care loan out of your 401K. First and foremost, you must make sure you still have a 401K, and not a 201K, or 101K, and in some cases 51K and worse, 21K. That's when the market has gone down you your 401K was halved, and then halved, and halved, and halved....