I know that most everyone knows that you shouldn’t take a loan against your 401k. And I know that many people do it anyway. I want to share my story. Mostly to vent but maybe someone might have some advice.
Apologies for the long post. But maybe it will help others.
In 2016 I took a 401K loan to put a larger down payment on a home. At the time the only loan I could qualify for was an FHA loan and the maximum allowable amount to finance was about 100K less than the purchase price. I could have afforded the monthly payment if they would have done an 80% loan. But I didn’t have 100K that I could put down. I didn’t know everything I know now about finance. But I thought I was safe. My wife and I were both employed in full time positions. I had over 25 years seniority with my company. My wife had 10 years with hers. We had no credit card debt or other debt other than our car loans and they were at very low interest rates. My budget told me that we could afford the house. So we did it. My first mistake was not understanding all the rules on the 401K loan. I wouldn’t have been too worried at the time about what would happen if I lost my job. I had 25 years seniority and I was a hard worker. So I thought my job is safe.
Mistake number one, if you take a 401K loan make sure you know ALL the rules, consequences etc before you do it.
So everything was fine. We loved our house. Time went by. In 2018 I was promoted. Nice increase in pay. Things were great.
Then Covid hit. In March 2020 the casino I worked at was closed. Before that happened a large number of people were laid off. Not me because I had so much seniority. But when the casino closed we were all laid off until the casinos could reopen. No problem I thought. I have my emergency fund. Shouldn’t be too long. This will be fine. I called the 401K provider and they told me that due to the cares act I did not have to make payments on the loan. When I went back to work they would re-amortize the loan and I would have a new payment schedule.
In mid June it was announced that the casinos would reopen in early July. Great I thought. I just need to hold out a little longer and then I will be back to work. NOPE! The company decided they would bring people back by seniority in the position, not with the company. Since I was the newest manager in my job title I was not brought back. I was shocked. I was told that when business increased people would be called back according to their position seniority. But I was the last person that would be called out of five managers. I knew this wasn’t likely. I was left on a laid off status with company paid benefits until September of 2020 and then I was let go.
Mistake number two, don’t assume your job is secure. You never know what might happen.
I immediately reached out to my 401K provider to find out what needed to be done about my loan. I was relieved to find out I didn’t have to pay the entire amount back. I was told that due to the Cares act I did not ned to make any payments until January. I would receive mail with instructions on how and when to make payments. There was a $100 fee to convert my loan. But I was just relieved I didn’t have to pay the full amount.
I didn’t receive anything by mid-January so I called my provider again. They apologized and said they would send the information immediately. I checked my account and saw that they charged me another $100. So I had to call back again to get this fixed. Took three phone calls to finally get that straightened out. But I got my first payment slip and sent a check off.
In February, once again no payment slip. Call them up. Tell them what happened. They said I could just mail a check and gave me the information to put on it. So I sent a check off. Then I got a payment slip for March and sent that payment off. Because of the overload on the mail service everything was really slow. My latest check actually cleared the bank before the prior one I sent. But I figured it was just taking extra time. March rolls on and the previous check I sent still hasn’t cleared. I’m getting concerned. But I don’t want to send another check with no payment slip. So I figure I’ll send two checks in April. If they find the February check and deposit it too, no biggie.
So yesterday (March 29) I receive a letter in the mail dated March 19, saying they have not received my payment. Pay the outstanding balance due or the loan will be defaulted. Payment is due by MARCH 31. I have two days to make a payment and they don’t accept any form of electronic payment (I had checked previously because I didn’t want to have to write checks). And the letter says the amount past due is ZERO dollars. WTF?! I called this morning and explained everything and asked for help. The person on the phone took all my information and said it had to be escalated to a different department. I should expect a phone call by end of day. At 4pm (pacific time) I called because I knew the help lines were only open for a couple more hours and I hadn’t gotten a call back. After several minutes of explaining everything to a different person they said they could see notes from my previous call. They started saying something about my payments had been applied to the interest and not the principal and that was what was causing the problem. I was told starting next month everything would be corrected. So I asked “does that mean my loan will not go to default tomorrow?” The person on the other end of the line said they didn’t have an answer for that question. After waiting on hold for a long time I was told there was no one left in the office that could answer that question. I should expect a phone call in the morning with an answer.
So now I wait to find out if everything is ok, if I have to pay the loan in full to avoid taxes and penalties or will they just report it as a nearly distribution and I will have to pay the taxes and penalties.
This is definitely one of those stories where if I could go back I would listen to the people that told me not to take a loan against my 401K. I hope this helps others avoid the problems I had.
Submitted March 30, 2021 at 09:06PM by nevadadealers https://ift.tt/3dn0coQ
