[BostonBMW]

If you're getting a bonus around this time of the year, what are you planning spending it on?

I got my bonus numbers last Tuesday, immediately spoke with Payroll to shift 100% of the dough to my 401(K). I am building up my 401K (trying to max it out to USD $16,500 per year) so that I can eventually take a loan against it and buy some cash flow producing Real Estate. No doubt I'm light years away from you location independent fellas, but I'm working with what I got in front of me.

Let me break it down:

Bonus $s -> Into my 401K (Pretax) -> Tax Free Loan from my 401K (50% of the account value) -> Down payment for cash flow producing real estate -> Pay back my OWN 401K (with 3% interest to MY OWN account) = More money in my 401K + 1 Cash flow producing RE asset

Benefits:

- You are avoiding the tax man at several instances 1. Bonus (its taxed at 40-50% rate/bullshit) 2. Early 401K withdrawals (Again taxed at 30-50% rate).
- Your borrowing AGAINST your own 401K account which means that paying back principal + interest is going back to you without dealing with any penalties.
- When you pay back the loan, you are using pre-tax income (Gross income) to pay back your 401K, so this reduces your taxable income.
- Using the tax free funds (401K loan) to leverage a Real Estate investment that produces more cash/reduces your taxes.

Risks:

- If you F up at your job and can not pay back your loan. You are hit with plan penalties + the tax man will want his share.

- You buy an alligator property, which basically sucks your paychecks instead of cash flowing every month.

[Roosh]

I still have money sitting in a 401k from my old job. I didn't know you can use it for a loan on property like that.

[stein]

The 401k knowledge here is killer BostonBMW- thanks for that. I'm going to check with payroll if my employer might allow me to transfer a cash bonus directly into 401k and circumvent the insane taxes that basically slash it in half.

[BostonBMW]

(12-30-2011 08:26 AM)Roosh Wrote:  

I still have money sitting in a 401k from my old job. I didn't know you can use it for a loan on property like that.

You might have to be 'in service' to qualify for the loan. Definitely check plan specifics.

Even if you don't qualify, you can definitely roll it into a Self Directed IRA. That's some next level shit that I'll write about in 2012. I want to setup an account for myself before talking about it.

[BostonBMW]

(12-30-2011 05:30 PM)stein Wrote:  

The 401k knowledge here is killer BostonBMW- thanks for that. I'm going to check with payroll if my employer might allow me to transfer a cash bonus directly into 401k and circumvent the insane taxes that basically slash it in half.

No doubt. I have made it a mission to maximize benefits while I am within the system. I do want to mention that your bonus might be hit with a medicare, social security deduction (depending on your annual income) but that's still a lot better than the taxman taking almost half of your money.

Also, the loan is technically for your personal residence. If I buy a 2-3 family house and take 1 room in one of the units while renting out everything else, whose to say that I'm not living there? That room will serve as the love shack, a spot to bring the girls that I bang.

Going for the win-win

[Smitty]

(12-30-2011 08:26 AM)Roosh Wrote:  

I still have money sitting in a 401k from my old job. I didn't know you can use it for a loan on property like that.

From the IRS website:
Loans from 401(k) plans. Some 401(k) plans permit participants to borrow from the plan. The plan document must specify if loans are permitted. A loan from the 401(k) plan is not taxable if it meets the criteria below.

Generally, if permitted by the plan, a participant may borrow up to 50% of his or her vested account balance up to a maximum of $50,000. The loan must be repaid within 5 years, unless the loan is used to buy the participant’s main home. The loan repayments must be made in substantially level payments, at least quarterly, over the life of the loan.

If you cash out or don't pay back the loan, I believe you're required to pay income tax and an additional 10% penalty on the loan distribution.

[Laser]

This thread is super inspiring. I need to develop a financial plan like OP's to start working toward. I've recently moved to London from America so:

1. Any Londoners know a guy or firm they can refer that specializes in tax/financial planning for Americans living in the UK?
2. OP's plan is for workers in America. Any UK members know of a UK based strategy or investment vehicle (non-company sponsored) that I can use to achieve the same goal - put away money toward down-payment on property in the most efficient manner.

[CGS]

I rolled my bonus into my 401k, looking at employer matching (mine matches 50% up to a set value), getting a 50% roi over one year is pretty insane for any investment, so even if you let it sit in cash (MMA) your investment there is going to be unmatched unless you are really lucky.

Another thing a lot of people fail to realize is that your debt needs attention. If you have a debt that is charging you X% interest and an investment opportunity that is yielding Y% interest and X>Y, you should pay the debt before you invest a single penny.

Also, if you have a lot of student loan debt, you can place it into income based repayment or forebaerance. Income based repayment will lower your payments based upon your gross income and forebearance will exempt you from payments. I have heard that if you place your loans into forebearance long enough that they eventually "go away." I know guys that have had loans in forebearance for >10years and have yet to pay on them. The student loan industry is the next big bubble in the US Economy. So, I would avoid paying as long as I can.

I invest in the financial market, mainly equities and fixed income instruments and their derivatives. I can't get the returns in real estate that I can in the Market and I don't have the time to manage an investment property.

[BostonBMW]

(12-31-2011 07:37 AM)Smitty Wrote:  

(12-30-2011 08:26 AM)Roosh Wrote:  

I still have money sitting in a 401k from my old job. I didn't know you can use it for a loan on property like that.

From the IRS website:
Loans from 401(k) plans. Some 401(k) plans permit participants to borrow from the plan. The plan document must specify if loans are permitted. A loan from the 401(k) plan is not taxable if it meets the criteria below.

Generally, if permitted by the plan, a participant may borrow up to 50% of his or her vested account balance up to a maximum of $50,000. The loan must be repaid within 5 years, unless the loan is used to buy the participant’s main home. The loan repayments must be made in substantially level payments, at least quarterly, over the life of the loan.

If you cash out or don't pay back the loan, I believe you're required to pay income tax and an additional 10% penalty on the loan distribution.

Good info. This would work for me. 50K Down payment on a 200K 2-3 Fam house. Pay your 401K back in 5 yrs. Avoid taxes altogether.

[BostonBMW]

I rolled my bonus into my 401k, looking at employer matching (mine matches 50% up to a set value), getting a 50% roi over one year is pretty insane for any investment, so even if you let it sit in cash (MMA) your investment there is going to be unmatched unless you are really lucky.

My company does 100% match up to 4% of the income. I have that coming through in January, when payroll does the calculations for the 401K contribution.

Another thing a lot of people fail to realize is that your debt needs attention. If you have a debt that is charging you X% interest and an investment opportunity that is yielding Y% interest and X>Y, you should pay the debt before you invest a single penny.

I think it would be better to keep short term, revolving debt at zero to low levels. Returns for passive investments have been paltry recently and its always worth getting rid of the debt monster.

Also, if you have a lot of student loan debt, you can place it into income based repayment or forebaerance. Income based repayment will lower your payments based upon your gross income and forebearance will exempt you from payments. I have heard that if you place your loans into forebearance long enough that they eventually "go away." I know guys that have had loans in forebearance for >10years and have yet to pay on them. The student loan industry is the next big bubble in the US Economy. So, I would avoid paying as long as I can.

I agree that the student loan market is a bubble, but when you go for forbearance or income based repayment, aren't you stacking on interest? Also, please breakdown your non-repayment strategy -- your student debt can not be discharged in bankruptcy and skyrocketing student loans weaken your financial profile.

I invest in the financial market, mainly equities and fixed income instruments and their derivatives. I can't get the returns in real estate that I can in the Market and I don't have the time to manage an investment property.

Definitely depends on your proficiency/interest level. I tend to favor RE as the primary investment and capital accumulation vehicle for the tax advantages and the relative stability (not counting the speculative run up in the 2000s) of the market. My strategy is simple, buy at the right price, and rent it out, reinvest the profits and enjoy the tax advantages. With Financial Markets, you have extraordinary turbulence coming up ahead (Eurozone woes, China slowdown, and the US struggling along), so for someone who is not a sophisticated investor (sounds like you are advanced) it might not be the best place to put your money.

Good stuff


[/quote]

[CGS]

(01-01-2012 04:20 PM)BostonBMW Wrote:  

Another thing a lot of people fail to realize is that your debt needs attention. If you have a debt that is charging you X% interest and an investment opportunity that is yielding Y% interest and X>Y, you should pay the debt before you invest a single penny.

I think it would be better to keep short term, revolving debt at zero to low levels. Returns for passive investments have been paltry recently and its always worth getting rid of the debt monster.

Your sentiments are true for the most part,however there is an exception. Liquidity can be an issue for some people, especially early in their careers. The marginal utility of those dollars now can far exceed the cost when you are scraping by. If that is the case then you ought to consider levering yourself as happiness is measured by utility, not dollars. If however, you have debt and are "just saving" because somebody told you that is what you ought to do when you have extra disposable income, then you would likely be better off paying down your debt as quickly as possible. I should have detailed my explanation a bit better in the initial post.

(01-01-2012 04:20 PM)BostonBMW Wrote:  

Also, if you have a lot of student loan debt, you can place it into income based repayment or forebaerance. Income based repayment will lower your payments based upon your gross income and forebearance will exempt you from payments. I have heard that if you place your loans into forebearance long enough that they eventually "go away." I know guys that have had loans in forebearance for >10years and have yet to pay on them. The student loan industry is the next big bubble in the US Economy. So, I would avoid paying as long as I can.

I agree that the student loan market is a bubble, but when you go for forbearance or income based repayment, aren't you stacking on interest? Also, please breakdown your non-repayment strategy -- your student debt can not be discharged in bankruptcy and skyrocketing student loans weaken your financial profile.

Essentially, my student loans are at LIBOR + 6 points so roughly 6.3% (and likely going to stay there). Last year on personal investments I made 34.7%. All my loans are in forbearance, and at my ROI it doesn't make sense to pay them off right now. My marginal utility argument from above applies here. I would rather nest egg my $$$ until a better time to pay off those loans. Furthermore, (and this explanation will lack reason) my boss informed of forbearance and he is the one that said you can let them go indefinitely and eventually "they just go away." I will look into this more and post when I find a better explanation. When I started my job making my student loans "go away" was very convenient for me since I work 60-80 hours a week and not having to deal with that hassle (and its a big hassle if you have a shit ton of loans across different lenders/programs) allowed me to focus on more important things, like making a better ROI.

(01-01-2012 04:20 PM)BostonBMW Wrote:  


I invest in the financial market, mainly equities and fixed income instruments and their derivatives. I can't get the returns in real estate that I can in the Market and I don't have the time to manage an investment property.

Definitely depends on your proficiency/interest level. I tend to favor RE as the primary investment and capital accumulation vehicle for the tax advantages and the relative stability (not counting the speculative run up in the 2000s) of the market. My strategy is simple, buy at the right price, and rent it out, reinvest the profits and enjoy the tax advantages. With Financial Markets, you have extraordinary turbulence coming up ahead (Eurozone woes, China slowdown, and the US struggling along), so for someone who is not a sophisticated investor (sounds like you are advanced) it might not be the best place to put your money.

I work at a Hedge Fund as an analyst/trader... so for me it makes a lot of sense to invest here as I have acess to models and data that most don't and it is what I get paid to know a lot about. I agree though, if you don't know what you are doing, now is NOT a good time to invest because someone else will liberate your hard earned cash from you. Markets are extremely volatile at the moment and everything has been range-bound for months so you've got to know when to be in and out of positions. You're also right about the tax advantages of real-estate... no cap-gains on the rent and interest can be deductible if you live there.

[BostonBMW]

Your sentiments are true for the most part,however there is an exception. Liquidity can be an issue for some people, especially early in their careers. The marginal utility of those dollars now can far exceed the cost when you are scraping by. If that is the case then you ought to consider levering yourself as happiness is measured by utility, not dollars. If however, you have debt and are "just saving" because somebody told you that is what you ought to do when you have extra disposable income, then you would likely be better off paying down your debt as quickly as possible. I should have detailed my explanation a bit better in the initial post.

Agreed. My advice was the average joe whose investing in mutual funds.

Essentially, my student loans are at LIBOR + 6 points so roughly 6.3% (and likely going to stay there). Last year on personal investments I made 34.7%. All my loans are in forbearance, and at my ROI it doesn't make sense to pay them off right now. My marginal utility argument from above applies here. I would rather nest egg my $$$ until a better time to pay off those loans. Furthermore, (and this explanation will lack reason) my boss informed of forbearance and he is the one that said you can let them go indefinitely and eventually "they just go away." I will look into this more and post when I find a better explanation. When I started my job making my student loans "go away" was very convenient for me since I work 60-80 hours a week and not having to deal with that hassle (and its a big hassle if you have a shit ton of loans across different lenders/programs) allowed me to focus on more important things, like making a better ROI.


With returns of 34.7%, I would be putting in every penny that I had towards maximizing the the ROI. Your marginal utility argument is very sound as well.

If you find an information on the student loan forbearance front, please update us by creating a new post or adding on to this thread. I have a few student loan ideas but I want to try them for myself before sharing the experience/pitfalls.


I work at a Hedge Fund as an analyst/trader... so for me it makes a lot of sense to invest here as I have acess to models and data that most don't and it is what I get paid to know a lot about. I agree though, if you don't know what you are doing, now is NOT a good time to invest because someone else will liberate your hard earned cash from you. Markets are extremely volatile at the moment and everything has been range-bound for months so you've got to know when to be in and out of positions. You're also right about the tax advantages of real-estate... no cap-gains on the rent and interest can be deductible if you live there.

Bingo. As a hedgie, you are very well positioned to reap the gains from the financial markets -- you're part of the less than 0.001% of the population and well suited for investing and benefiting from the turbulance.

Many readers of this discussion would need to do significant research in order to really identify and benefit from the volatility. I see what the high frequency traders have been doing and I think that there are some serious dollars to be made.

I use Ben Graham's value investing model. I read the Intelligent Investor sometime back and it struck a chord. I'm investing in the equities market in order to have some skin in that game. My main investment goal is purchasing cash flow producing RE.

[CGS]

(01-01-2012 05:38 PM)BostonBMW Wrote:  

If you find an information on the student loan forbearance front, please update us by creating a new post or adding on to this thread. I have a few student loan ideas but I want to try them for myself before sharing the experience/pitfalls.

Alright here is what I have regarding student loan debt. You can place loans into forbearance for up to 48 months. You need to re-apply every 12 months. Here is the catch, if you consolidate your loans it resets the forbearance clock. Also, there is loan deferrment which is the same as forbearance except that loans do NOT accrue interest while in deferrment. There are eligibilty criteria for deferrment.

http://www.direct.ed.gov/postpone.html

There is also a program called Income Based Repayment(IBR). Where if your payment is calculated based upon your previous year's income.

http://ibrinfo.org/what.vp.html

Here is where I can see the system being exploited:

Graduate from school and immediately put your loans into IBR for the next 2 years since you probably made <150% poverty line for those 2 years (last year of college/grad etc. and 1st year of working because most jobs will have only been held for 1/3 of the year... i.e. you start in aug/sept and accrue income for part of the year).

Afterward, place loans into forbearance for 4 years.... Accrue as much wealth as humanly possible during that time. If necessary, consolidate a couple of loans and reset the forbearance clock and continue accruing wealth. Once you have enough wealth to start a business/travel etc quit and go back into IBR. If you play your cards smartly you can *show* massive losses in your startup for the first year or two while still making money. At this point you will need a tax attorney to help you out.

The point is that there are ways to avoid paying these loans that were likely thrust upon you and are preventing you from realizing the things you want to realize.

(01-01-2012 05:38 PM)BostonBMW Wrote:  

Many readers of this discussion would need to do significant research in order to really identify and benefit from the volatility. I see what the high frequency traders have been doing and I think that there are some serious dollars to be made.

I use Ben Graham's value investing model. I read the Intelligent Investor sometime back and it struck a chord. I'm investing in the equities market in order to have some skin in that game. My main investment goal is purchasing cash flow producing RE.

Good luck getting acces to high freq.... it's the best method out there for making cash.... sharpe ratios in the thousands for some operations. Unless you're an accredited investor, you're SOL.

Graham's material is definitely relevant, however I don't think markets are the same anymore. Unless you can really invest your money and say "I know this investment is a smart investment and I will stick with it until I achieve the returns I expect." I would say that line of thought fails to address risk aversion... most investors don't have the stomach to sit there and take a whipping day in and day out waiting for an investment to come through. Since July, the S&P 500 saw moves of >1% on 56% of the trading days. It is also down 7% since then, that's an awful lot of mylanta. Furthermore, most folks don't have access to margin and short positions, so you're working with a half-empty toolbox.

I don't understand the having skin in the game argument. To me that's like saying: "I'm going to go buy that bitch a drink because she's hot as hell and I've got to take a shot..." Instead of trying to understand what will allow you to access her loins your just throwing money at the prize hoping your chickens come home to roost.









[/quote]

[BostonBMW]

Alright here is what I have regarding student loan debt. You can place loans into forbearance for up to 48 months. You need to re-apply every 12 months. Here is the catch, if you consolidate your loans it resets the forbearance clock. Also, there is loan deferrment which is the same as forbearance except that loans do NOT accrue interest while in deferrment. There are eligibilty criteria for deferrment.

http://www.direct.ed.gov/postpone.html

There is also a program called Income Based Repayment(IBR). Where if your payment is calculated based upon your previous year's income.

http://ibrinfo.org/what.vp.html

Here is where I can see the system being exploited:

Graduate from school and immediately put your loans into IBR for the next 2 years since you probably made <150% poverty line for those 2 years (last year of college/grad etc. and 1st year of working because most jobs will have only been held for 1/3 of the year... i.e. you start in aug/sept and accrue income for part of the year).

Afterward, place loans into forbearance for 4 years.... Accrue as much wealth as humanly possible during that time. If necessary, consolidate a couple of loans and reset the forbearance clock and continue accruing wealth. Once you have enough wealth to start a business/travel etc quit and go back into IBR. If you play your cards smartly you can *show* massive losses in your startup for the first year or two while still making money. At this point you will need a tax attorney to help you out.

The point is that there are ways to avoid paying these loans that were likely thrust upon you and are preventing you from realizing the things you want to realize.

Good advice. I’ll check with my accountant/tax attorney.

Good luck getting acces to high freq.... it's the best method out there for making cash.... sharpe ratios in the thousands for some operations. Unless you're an accredited investor, you're SOL.
Exactly my point. The small investor is pretty much excluded from this lucrative side of trading.

Graham's material is definitely relevant, however I don't think markets are the same anymore. Unless you can really invest your money and say "I know this investment is a smart investment and I will stick with it until I achieve the returns I expect." I would say that line of thought fails to address risk aversion... most investors don't have the stomach to sit there and take a whipping day in and day out waiting for an investment to come through. Since July, the S&P 500 saw moves of >1% on 56% of the trading days. It is also down 7% since then, that's an awful lot of mylanta. Furthermore, most folks don't have access to margin and short positions, so you're working with a half-empty toolbox.
I don't understand the having skin in the game argument. To me that's like saying: "I'm going to go buy that bitch a drink because she's hot as hell and I've got to take a shot..." Instead of trying to understand what will allow you to access her loins your just throwing money at the prize hoping your chickens come home to roost.

The two points are interrelated. With regards to equities, I am a value investor with a long time horizon, and I don’t need access to the capital invested in the financial markets. This allows me to have skin in the game, to maximize my long term ROI, without having to dedicate additional time towards tracking the short term performance. I do review and re-balance my portfolio on a Quarterly basis.

[Prowl]

This is a pretty informative thread, particularly all the info on 401k's and student loan forbearance, both of which I plan to take advantage of.

Anyway, my bonus WAS going to pay down my student loans upfront, but now I'm not so sure.....

At any rate, it'll go somewhere responsible, I'm not going to spend it on bullshit.