All Things Economic

Weren't there some changes to the tax laws involving 401k during the pandemic ?

The rules for 401(k) loans are governed by your plan as well as IRS rules - some plans are more restrictive than others.

I've been away from HR and IRS regulations for too many years to speak to the subject with any authority but my gut feeling is that it's not the worst time to take a loan from your 401(k). (I was the bookkeeper/office manager/all-around-crazy person at a small company for almost thirty years but retired about seven years ago).

The only gotcha that I remember is that if your employment ends before the loan is repaid then it is a withdrawal subject to potential penalties.

The max from a 401k is 50k or 50%, whichever is less, I think.

There is absolutely no tax penalty because you are not making a withdrawal.

The repayment period varies.

If you're 401k is 100,000 today, you borrow the max whatever that is, maybe 80% ? If the 401k tanks hard and goes down, when you pay it back, it's not lost right ?, You'd be replacing that lost cash ? You can tell by my childish question I've no idea lol

I've never borrowed from an IRA or 401k but isn't the tax hit pretty steep? I admit to liking the idea of borrowing against it to keep it safe in case the market tanks bigtime and I believe it will.

There are no taxes to be paid, it’s a loan not a withdrawal.

Pay back is at 5%, but I’ll be paying myself back.

While the money is out of the market it can’t appreciate, but can’t lose value either.

I’m thinking that if I had borrowed at the beginning of the week, that $50k wouldn’t have participated in the 6-ish % decline of the market.

And, I’d be paying back in dollars which are worth less than the ones I borrowed.

It’s not a major win overall, but worth a couple of grand as measured by my finger in the wind type calculations.

Where am I wrong? What am I missing?

What are your 401k rules to pay back , Your taxes on that money will be the max . I see your age , you are getting near retirement I wouldn’t unless I absolutely had to . Can you get this money elsewhere ? I cringe when I say this but maybe borrow against your house .

I have a question for some of you financially savvy folks (I’m looking at you Current and Molly).

I’m thinking of borrowing money from my 401k. Are there any good reasons to not do that at this time?

I confess that although I’ve read quite a bit on bitcoin, I still don’t see it as a investment. One obvious thing sticks out, yeah, there are only going to be a limited number of bitcoins. But as it is virtual currency, there is nothing to stop someone from creating another virtual currency. In fact, there are already a lot of them. At the end of the day, if I am in the most remote part of nowhere, a couple $100 bills can get me food, gas, or shelter.

Current - "In other news, how would you like to be "that guy" who bought bit coin last November at $66,123?"

I'd rather be the guy that got 10k bitcoins for 3 pizzas :-) Wouldn't we all though.

"I'd be willing to wager that three weeks from tomorrow, the S and P 500 will be below the recent low of 3821.."

Posted 21 days ago. So barring a major rally from the current level of 3,670 that should pan out.

In other news, how would you like to be "that guy" who bought bit coin last November at $66,123?

I also belong to a rural electric coop that dates back to the REA era. Our base charge is $80 which is half to 2/3 of my power bill. Wss doubled a few years ago to cover more of the line maintenance charges. Most of the debate locally is about raising the base charge vs the kwh charge. With higher base charges, second home owners (ie most home owners) pay a larger share. The coop is able to buy a certain amount of BPA power very cheaply. Most of the regional Public Utility Districts also own dams on the Columbia (like the BPA) and subsidize local power rates by wholesaling power out of district. Bit coin mining is becoming a big issue because those shit bags get local commercial power rates and detract from the surplus sales that keeps everyone else's power rates low. I have no clue why their boards of governors put up with that idiotic horseshit.

We have a service charge, a couple of things, that mean a minimum bill of about $20. We do have a time of day here, power from 6pm to 6am is half cost. So we run the dishwasher and water heater at night. We live in a very rural area, so only have one provider here. We had some sort of deregulation thing come thru years ago, but it wasn’t successful. One thing a lot of folks don’t see is the amount of subsidies hidden in the system. For example, in my rural area, there is no way that the rate I pay comes anywhere near enough to cover the cost of line maintenance and capital costs. The folks living in condos in town pay the same rate, but the cost of service to those places is much less.

Another thing, about 10 million folks live in Michigan. About 9 million live in 10 or 12 southern counties. The whole UP, about 1/3 of the state, only has about 200,000 residents. Maybe less. There are some counties with only a couple 1000 residents. Providing power and roads to them is much more expensive than the southern part of the state.

Typically it's incentives (local and federal) that make solar pencil. I installed a 15 kw PV array on a commercial building I built in 2015. At that time the incentives paid back the capital cost of the installation (panels, inverters, meters) in full over four years. The cost for installation labor was not included. Got back about $28,000 of a total cost of about $40,000.

If it's close, I would probably do it for the generational/moral benefit myself. We don't yet have a practical system for monetizing the downside of carbon.

Eric Jo - "I am surprised that your rate could double in a couple of years."

With electricity deregulated, we were able to pick our electric gen supplier. I had a 2 year contract (as I recall) with North American Power for $0.08/kwh.

We just had a bunch of trees removed around our house and now get a lot more sun on our roof, so seriously considering solar panels, but still not sure it's worth it.

At a rough guess, our average electric bill is $150/mth. However, if we still stay grid connected I believe we still have to pay the delivery cost, which is about half bill. I'm not sure if that is fixed or based on the usage.

I think last month was around 800 kwh usage. A ballpark price is $20k for a 5 kwh system. Assuming you get an average of 10 hrs/day at that rate gives you 50 kwh/day and about 1500 kwh/month.

Seems ample power to more than cover needs, but if the delivery is a fixed cost of say $70/mth, then I can only save about $80/month, or about $1k/yr. If so, it would take 20 years to pay it off, which is the avg lifespan of the panels. I'd just be trading one bill for another if I financed it, or paying it all upfront.

Yes that was sort of cool. As was the link to the article on the "Epstein drive" since I am a big fan of "The Expanse". Enough science at the core of the concept to make for a first rate geek confab.

More "down to Earth" also found the relationship between economy size and trade as a percentage of GDP interesting.

"Interesting article in the NYT..."

It really was. However, when I first read your post my initial thought was that an SFF author had done that calculation more than a decade ago. But it's fine, because Krugman cites the same essay I read. ;)

Also, nice to know I'm not the only one Musk isn't fooling with his current Rumpelstiltskin/LOOKOVERTHERE act.

My electric is .16 per kWh. 2 other areas near me, Lansing and Detroit, are .15 & .18, respectively.
Rates here are controlled by the state public service commission. The utilities have very long term contracts for energy supplies. I think they might be 20 years out. We do have some nuclear, but that is slowly going away, it cost too much to replace a nuke. I believe there are some areas, in the west with a lot of hydro power, and in the south with subsidized power, TVA ? A lot of power is brought in from Canada here, as backup. I am surprised that your rate could double in a couple of years. I don’t think it has doubled here over 30 years.

Interesting article in the NYT by Paul Krugman regarding Elon Musk's stated desire to send a million colonists to Mars by 2050.

His point is not so much the obvious, which is that this goal is absurdly optimistic from a technological and economic feasibility standpoint, but rather the fact that one million colonists would be a number far too small to sustain a modern economy.

He brings up some interesting facts about the nature of international trade relative to the size of a given national economy. Worth a read IMO

One thing that I noticed, at least in my area, it that the cost of a KW/hr of electricity is about double what I was paying just 2 years ago. While people may look at this like gas prices where "It's only a few extra $$$ to fill your tank", all of the these little things combined add up. I don't see that trend changing all that soon.

Well, the Wall Street talking heads are out in force with "the worst is over", "the market has definitely found a bottom", "inflation has peaked", blah blah blah. And people are clearly buying it. Especially the latter idea as a poll yesterday showed Americans overwhelmingly think inflation is "transitory".

Only it's not. Gas prices may be freaking people out right now, but the summer driving season hasn't even started yet. Couple that with current record low gasoline stocks and the finance gurus who are spouting that the Fed has already "created widespread demand destruction" are going to be proved laughably wrong. The only demand destruction I see is in housing because banks aren't as clueless as stock market investors. When the trip to Disneyland comes up against already high gas prices, especially after two years of covid, demand destruction is going to lose out to higher credit card debt.

People's beliefs may affect the market, which means my hypothetical bet may well turn out to be a stupid one. But gravity does exist even if enough crack can make you think that you can fly. Adding to energy inflation will be core issues like wheat prices. Ukraine, the ninth ranked world producer is a glaringly obvious problem. But then there is Russia, the backlash against which is the cause of the energy price shock, and the third largest wheat producer (producing 80% more than the US). And consider Ukraine is also the world's 5th largest Corn producer. Given that the Fed has not waivered from its 2% inflation target, means they will keep hiking rates for the foreseeable future (also note all the current kerfuffle is about only 75 basis points actualized to date, and that up from a baseline of nearly zero!). This means the cost of credit will continue to rise to something more historically credible despite what people "think" or Wall Street spin doctors want them to think.

Real demand destruction will happen when inflation continues to outstrip wage growth and the inevitably, and instantaneously in lock step with rate hikes, higher cost of credit finally hits home. What we saw in the great recession is that, incredibly if not illogically in the final analysis, people were more willing to give up their houses than their credit cards. Credit card bills will be the final harbinger of demand destruction.

Of course I'm never wrong about anything...

“ I'd be willing to wager that three weeks from tomorrow, the S and P 500 will be below the recent low of 3821...”

I’ll sell that put, and raise you a 4000 call

There is a Musk thread over in Politics...

"Also, it would be lovely if you would confine politics to the Politics forum, as a courtesy to those who want nothing to do with it."

^^^^^this!

"Assuming the right left split is near 50/50..."

It isn't. According to a Gallup report for 2020, 36% of Americans identified as conservative, down from 43% in 1992.

Also, it would be lovely if you would confine politics to the Politics forum, as a courtesy to those who want nothing to do with it.