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No. of Recommendations: 4
2. 457 plan thru work. Balance $138,246 after a gain of 29.06% during 2019. That gain is very much atypical. In fact, I somewhat expect to lose much/all of that gain over the next 12 months, and would like to use some of the money before it vanishes with the 2020 election process. This money would be a loan against the balance at 4.5% with a $24 per year service fee. 4.5% vs 16.75%.

The question is - if you leave your job, voluntarily or involuntarily, during the loan payoff period, will you have the money pay the loan back? Since you are borrowing to pay back your current credit card debt, I highly doubt it. If you can't pay the loan back, the remaining balance will become an early distribution, and you will owe taxes at your marginal rate, plus a 10% penalty (if you are under 59 1/2), just for Federal income taxes. If your state has an income tax, you will owe more.

This one would be a loan. Essentially a balance transfer from 16.75% to 4.5% with a fixed payment, payroll deducted, for between 1-5 years. The money will be trickling back into the 457 until it is all right back in. Any interest or loss that those dollars would have incurred sitting in the stock funds is what I'd be giving up. Do you think the funds would beat 12.25% (16.75-4.5%) during the payback period?

Yeah, I know it would be a loan, and you would be "paying yourself back". You're not looking at the real risk of taking out a retirement plan loan - being unable to pay the loan back if your leave your job, either voluntarily or involuntarily. The risk of that is a 32%+ tax and penalty bill on the remaining balance, in addition to not actually getting the money back into your retirement plan.

You said you cut your retirement plan contributions. What other techniques have you tried in your debt pay down? Have you looked for balance transfers? Have you stuck to a budget? Have you cut your spending? Have you tried selling things? Have you tried getting side gigs?

Again, you seem to be wanting to take the easy way out, rather than actually fixing the problem. If you don't actually fix the root problem of living above your means, this raid on your retirement plan is unlikely to be your last one, and you will end up in worse financial shape than you currently are. Paying off credit cards without fixing a problem of living above your means just gives you more credit to live above your means with.

I really REALLY think the fund will lose money over the next 16 months. If I have less invested during that time then there will be less loss. Of course, some of this is indeed speculation, but some is concrete.

Then change the investment now - before it loses money. As long as you don't sell your investments after they've dropped, you don't actually lose any money. A drop in your account value isn't a loss until you actually realize the loss by selling the investment when it's down.

But if things are really going to get that bad in the next 16 months, how likely is it that you will lose your job, and end up paying 32%+ in taxes and penalties? On a $40k balance, that's an extra $12.8k that you will need to come up with to pay the IRS. How would you come up with that? Take cash advances from the credit cards?

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