My self-employed wife has had one for years. It is just a general brokerage account like any IRA; the only difference is we have to keep track of the “employer profit share” versus the “employee contribution”. She nets about $80K per year and we can put about $30K of it into the SE401K.

A “general” employer 401K _is_ harder to set up.

thanks for having my back

RateLadder is not defaulting on this or any debt.

I would bet that my loan ends under 10%. So I will actually pay less in finance charges than in the example.

What risk? The risk that I wont pay off me loan? Or the risk that I won’t have enough in retirement? There is always risk. I was intentionally simplifying the scenario so that I could come up with an easy example.

Regardless of what you think about my pretax contribution to a tax deferred, (I hope we aren’t questioning the merits of the previous portion)

I am making $6,000 (pre tax savings) – $3,999 (finance charge plus origination fee) = $2,001 on the transaction.

Make sure you read the assumptions again. How is this a bad thing?

It looks nice on the surface. You just decribe it, if everything goes perfert. Risk is always a factor when borrpwing money. You are a slave to someone for 3 years

In my opinion, the best reason for doing what RateLadder is doing is to make the maximum annual contribution for last year before the deadline on April 15. Perhaps he is perfectly capable of contributing $24k within 12 months, but does not have 12 months to do so. Taking out a loan in order to make the deadline is perfectly legitimate in my opinion.

The thought of using a home equity loan vs. a Prosper loan had crossed my mind as well, in order to take advantage of the deductible interest on the home equity loan. In this scenario, if he were to use a home equity loan @10% amortized over 36 months, the home equity loan would bring an additional $970 in tax benefit over three years. Of course, if he pays the loan within 12 months it would be less than that.

The best way to fund your retirement is to make regular contributions from your income. You’ll have the same benefits as the scenario (even the immediate tax savings!) without the cost or risk of the loan.

If you can’t afford to do that or do not have the willpower to do it, then address those issues first.

It frightens me that people out there make suggestions like this because other people will follow them without understanding what they’re getting into. I mean, if you’re going to borrow to fund retirement, why not take from your home’s equity, right? Then the interest you pay on your loan is even tax deductible!

Talk to a licensed Financial Advisor you trust if you have questions about this. Don’t take advice from a blog.

The money put into the SEP-IRA is pre tax. (assuming you meet all of the qualifications yada yada).

So by putting 24K into a SEP-IRA I am immediately reducing my taxable income by $24K. If my tax bracket were 25% (see assumptions) that results in an immediate $6K benefit from putting the money into the SEP-IRA.

$6,000 = immediate tax savings $24K * 25%

Is it because the money is pre-tax or are is the interest on the loan deductible?

@C.Ward
A totally valid question, up until late spring I had been making regular contributions. I got to the point where the stock market was too high for my comfort so I stopped. I will likely pay off this loan early. but I was trying to keep the numbers simple for the post. But assuming you can afford the payments then you could take out a 3 year loan each year and benefit from the tax deferred nature of the account.