taking a loan on a retirement account RRS feed

  • Question

  • Hi,

    First time poster here.  Anywho, I have recently taken out a loan on a pre-tax retirement account and not sure how to set this up in Money.  I am using the MS Money Sunset version.  I tried doing a search on the topic and could not find anything even similar to my question.



    Thursday, May 21, 2015 3:37 PM

All replies

  • Is there a reason why this would be different than a "normal" loan (from a bank)?
    Thursday, May 21, 2015 5:55 PM
  • well, it's sort of a loan to myself.  When I enter my paycheck, part of it goes into my deferred comp account (pre-tax retirement account).  It is this account that I have taken a loan out on.  So the payments would go back into the def comp account.
    Thursday, May 21, 2015 6:06 PM
  • IRS Pub 590-A states you cannot borrow from a traditional IRA so I assume this is a 401(k).  Presumably you fall into one of the exceptions in Pub 575 so the loan is not a nonperiodic distribution.  And of course you cannot deduct the interest on the loan.

    Is the source account a cash account or an investment account.  If investment, then you probably had to sell some assets to generate the cash for the loan.  In either case, you then had to transfer the cash from the source account to a target account, probably a checking account.

    Every month you make a loan payment (check or automatic withdrawal or even payroll deduction).  Part of it goes toward the principle.  This gets added back to your investment account but is not counted as a contribution.  This is a transfer in the opposite direction.  Do you pay interest on the loan?  If so, the remainder of the payment is a non-deductible interest expense.  The interest portion will change each payment so you may need to access the account online to get the correct figures each time.

    Friday, May 22, 2015 5:13 AM
  • yes, it is a deferred comp plan (I suppose similar to a 401(k)).  I work for New York State.   

    First let me thank you for your prompt reply.  I've been using MS Money many years but have not used many of the advanced functions so I'm a little out of my league and I also don't have a finance background but trying to be more attentive to tracking my accounts.

    The source account (deff comp) is an investment account, and I have 2% of my salary invested each pay period (every two weeks). 

    I can't answer whether any of my investment had to be sold to generate the cash ($10K) but that is a good question which I will look into with the account manager.  There is an interest rate as well as a loan term.  The loan amount was transferred to my checking account which is the same account my salary is direct deposited. 

    Again, thank you for your help and I will look into this further.  I really want to set this up in my MS Money account correctly, but just do not have the wherewithal yet.  Getting there.


    Friday, May 22, 2015 1:42 PM
  • I think I would treat it as separate transactions for regular vs 401K accountsw. I would make a loan to borrow money and pay interest to the checking account. In the 401K I would maybe treat this as a Buy of a Money Market Fund in the 401K, and treat the interest received into the 401K as interest.

    The alternative of doing transfers I suspect would confuse Money into thinking that you were taking a taxable distribution.

    Friday, May 22, 2015 7:38 PM
  • http://umpmfaq.info/faqdb.php?cat=10#Q2

    Monday, May 25, 2015 12:58 PM