Reply to If you took money out of your TSP for a downpayment on a house....

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Don't you people understand continously compounded interest and what you lost? I think borrowing from a TSP is incredibly stupid [/quote]

This concept is lost on them. Sure, would be a great idea if you could time the withdrawal to coincide when the real estate market is at bottom and stocks are on the decline. Over the last 10 years you would gain way more money on retirement investments than real estate investments.

However I dont think the kind of person that entertains a retirement loan is exactly financially literate. [/quote]

Yeah, this is wrong.  [b]All money not in the market has an opportunity cost, [/b]including non-retirement money used for a down payment.  The cost of (say) a $250K down payment is indeed the lost returns on that $250K.  But this does not depend on whether the money came from a retirement account, a non-retirement account, or even cash.

Because 401k loans allow you to move money in and out of retirement accounts with zero transaction costs, they are no different as a source of funding than non-retirement money.[/quote]

This.  It’s too complicated to even figure out.

Another factor is that I’d have to rent had I not purchased a home and over the life of the 401k loan, my rent would continue to increase.

[b]I choose to take the 401k loan instead of selling company stock and paying capital gains.  What’s the opportunity cost of the loan now that it’s allowed me to retain company stock into retirement that has continued to appreciate?  [/b]

A 401k loan can be a very useful tool depending on the circumstances.

[/quote]

The correct answer is to not do any of those things in order to buy a home. You keep your money in the 401k. You don't sell company stock in order to finance a home purchase. And the fact is if your rent increases you could always move to a cheaper rental.

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