pmb[at]his.com (Paul Michael Brown) wrote in message news:<pmb-0606040341000001[at]max1ka-47.his.com> ...

Thanks for your response. I appreciate the time, though I felt
that the repeated use of "idiot" was a little bit excessive.

- quote -

You are close. I don't know that I am trying to "time the market"
other than that I am scared of the stock market at this time. I
guess that *is* the classic definition of 'market timer'. Probably,
I feel comfortable when the market has gone *UP* which is probably
the worst time to enter the market. I did miss the gains of 2003
which has me kicking myself. But I don't want to jump in now
which would be a classic case of "buying the highs".

As you and others have pointed out, I should probably re-invest in
stock in the 401K plan. Please see further

- quote -

I am (or rather *was*) willing for the 'low' money market fund.
What was bothering me was that the CMPXX pays only 0.93% while
other equally safe FDIC savings a/cs are paying 2.1%. While
accepting the returns of a money market fund, why shouldn't I
criticize CMPXX's 0.93% while other money markets are offering
twice that return ?

- quote -

Okay, that is similar to what others have advised. I was
looking for guidance on a mix of the funds above. It seems
that VIIIX & VBAIX would be reasonably sufficient. I will
move my 401K to a 60/40 ratio as advised - though I will
probably do it over a couple of months (kind of DCA) rather
than all at once tomorrow.

- quote -

I see my 401K as the main 'retirement fund'. My IRAs are very
small (compared to 401K balances). VGHCX has done very well for
me over the past five years. I believe that Health Care will
do well in the future and am willing to put a small amount
(less than 5% of my portfolio) in it. Almost similar thing
with SCGDX.

- quote -

I am already there. I actually have about 12 months living
expenses in cash (ING Direct Savings a/c) - though a portion
of it would be used for a planned car purchase in the future.
The remaining uncommitted portion is about 6 months' expenses.
Beyond that, no other loans except mortgage. Mortgage is
about 55% of current home value (70% of purchase price,
bought in 2000).

The 401K is about 60% of my investible funds (not counting the
ING Direct account). I have IRAs (own Roth & wife's traditional)
as follows:
VGHCX: 3%,
SCGDX: 2%,
VWEHX (high yield corporate): 3%,
VWELX: 2%,
VWNFX: 2%

In normal taxable accounts, I have:
I-Bonds: 12% (mostly at the fixed rate of 1.1%, currently yielding about 3.5%)
Cash (money market, savings a/c etc): 5%
(not including the 12 months' expenses)
Employer stock: 8%
This is stock purchased at 15% discount in ESPP plan. I am
generally holding the stock for 18 months (for qualifying sale)
and then selling it to minimize my exposure. Basically now,
every six months, I buy some stock in ESPP and sell the batch
bought 18 months ago - which tends to keep my exposure constant.
Employer stock options: all underwater, I don't count on this
for anything.

I haven't made any plans for children's education (CESA or 529).
That is the only area where I feel I need to do something.

All suggestions are appreciated.

-- Shankar Prasad
shankar_v_prasad[at]hotmail.com

- quote -

Unless this guy is 75 years old, why in the WORLD does he want to hold an
"FDIC insured Savings account" in his tax deferred account?

- quote -

Sounds like this guy is a market timer who is looking for a cash
equivalent in which to park his money until he's comfortable moving back
into equities and fixed income investments. If he's so certain he can
predict when it will be wise to get out of cash, he should e-mail me so we
can both get rich. Of course, he can't do that. So he efforts to time the
market will end up costing him in the long run.

- quote -

Here the original poster displays his ignorance. He says he is "personally
not comfortable with either the intermediate bond fund or the stock
funds," yet he derides the "low-paying" money market fund where he's got
85 percent of his retirement money. He can't have it both ways. Either he
accepts the risk that comes with being invested in the equity and the
fixed income markets, or he accepts the paltry return that come with being
invested in cash.

- quote -

Definitely an array of funds that will permit this guy to construct a
balanced and diversified portfolio.

- quote -

STOP TRYING TO TIME THE MARKET. Here's a back-to-the-future idea: Go 60
percent equties and 40 percent fixed income, using index funds where
possible. And guess what? That's silly simple if you invest in the VBAIX -
Vanguard Balanced Index. Will this fund be affected by "volatility in the
current election year and other macroeconomic scenario?" Of course. But so
will EVERY OTHER FUND LISTED.

Again, unless the original poster is 75+ years old, his long term
investments should be about 60/40 equities vs. bonds. He should dollar
cost average and stop trying to time the market.

- quote -

WHY!?! Retirement funds should be invested in a broadly diversified way.
This idiot has invested in two (HIGHLY volatile) sector funds.

- quote -

Apparently he's trying to hedge his volatile and non-diversified IRA asset
allocation by putting his taxable money almost entirely in cash. This, of
course, gives him the worst of both worlds. Again, this isn't rocket
science. In the tax-deferred account, go 60/40 equities vs. fixed income,
using index funds. In the taxable account, start with six months of living
expenses in cash. Beyond that, pay down all debt except mortages. If you
still have leftover cash, consider the advantages of long term capital
gains and invest in funds that track indexes like the Wilshire 5000 or the
Total Bond Market. If your marginal tax rate is high enough, consider
munibonds.

- quote -

Oops, I left a very important wordout of the last sentence. It should
read:"Most 401K plans ARE NOT set up to do this."

PaulMaf wrote:

- quote -

But I'm confused by the limitation imposed by IRC 72(p)(3). It
appears to say that you can't deduct the interest if the loan
came out of "elective deferrals" (at least, that's my
understanding of the code provision). Can anyone shed additional
light on this?

MTW

- quote -

The answer is no, but not for reason one that you state.

The reason 2 is only partially correct. A 401K loan to purchase a home would
have its interest deductible if the 401K plan sets it up as a real mortgage.

Most 401K plans are set up to do this.

Tad Borek <borekfm[at]pacbell.net> wrote in message news:<O7uvc.4206$nL1.1233[at]newssvr27.news.prodigy.com> ...
- quote -

Thanks. The loan amount would have been put into a taxable
savings account or money market fund. That would have
generated taxable income and would seem to meet the condition.
However, consensus seems to be that because the source of the
loan is my own 401K (with the interest being paid in to my
401K account), it cannot be deducted as "Investment Interest".

Would the same be true for 401K Loans used to buy first home ?
Can the interest part of 401K repayment be treated as "Mortgage
Interest" ? I guess not, because:
1. The interest is paid to "yourself" (own 401K account)
2. The loan does not place a lien on the house.

Thanks for the respones. Based on the fact that the interest
is not deductible, I have decided not to execute the
"Take-401K-loan-and-put-into-savings-account" plan.

-- Shankar PRasad

Check your plan, some will not allow contributions for a certain period
right after you take out the loan.

Shankar Prasad wrote:
- quote -

No, that's not the sort of interest that can be deducted. You're
thinking of margin interest paid to generate taxable income. This isn't
that. It's not taxable income and it's not interest (you're paying it to
yourself).

-Tad

"John A. Weeks III" <john[at]johnweeks.com> wrote:
- quote -

I respect that. With a maximum loan amount of $50K, I
am looking at a possible increase of (2.14 - 0.93)%
possibly $600 or so for the first year. Not too much,
but not too shabby either for a few hours' work. There
will be no ongoing management - as the loan repayment
will happen directly from paycheck - and the savings a/c
with the loan proceeds will be left alone with no
transactions. What do you see as "going wrong" in this ?
I would like to know about these potential pitfalls.

- quote -

I am trying to effectively earn a little bit more than
my 401K's Money Market fund (CMPXX) 0.93% by moving some
portion into a better paying FDIC insured Savings account.
Since the option is not available within 401K, I am trying
to borrow the money out of 401K to do it.

- quote -

There is a small decent collection. However, given current
economic scenarios, I am personally not comfortable with
either the intermediate bond fund or the stock funds. A
significant portion (85% of balance) is in the low-paying
CMPXX Money market now.

The various funds available to me in 401K are:
CMPXX - Nations Cash Reserve
WATFX - WAM Core Portfolio
VBAIX - Vanguard Balanced Index
GSTIX - Goldman Sachs Strategic Growth
FCNTX - Fidelity Contrafund
VIIIX - Vanguard Institutional Index
SSHFX - SoundShore
LLPFX - Longleaf Partners
CMSCX - Columbia Small Cap Growth Fund
NBGEX - N&B Genesis Trust
FDIVX - Fidelity Diversified Intl Fund
PIFIX - PIMCO Innovation

I am currently invested 5% in each of VIIX, SSHFX, LLPFX
and 85% in CMPXX. I would appreciate any suggestions on
good choices from the above. I am worried about volatility
in the current election year and other macroeconomic
scenario.

- quote -

I am already fully invested in IRA (both mine and wife's)
in VGHCX (Vanguard Health Care) & SCGDX (Scudder Gold & Precious)
I am looking to get better returns on the Money market portion
which cannot be "moved" to IRA. Perhaps I should consider
moving IRA to a Stable Value Fund ?? But I like the VGHCX
(holding for 6 years) and SCGDX (holding for 3 years now).

Tad Borek <borekfm[at]pacbell.net> wrote:
- quote -

Are you saying that interest paid on 401K loan cannot be
deducted as "Investment Interest" even if the loan amount
is put into a taxable savings account or other investment ?
What is the reasoning behind it ?

- quote -

Yes, I am factoring in taxes on the investment income
outside - and hoping that the "investment interest"
deduction will offset (and more) the investment income.
As I said, without the deduction, this doesn't make
sense.

Interest rates rising is actually a good thing - because
my outside investment (savings a/c) will have higher
return, while the 401K loan has a fixed 5% rate. The
loan's interest rate is calculated as "prime + 1%" *AT*
the time the loan is approved, but remains at that same
fixed rate for the duration of the loan. So, for loan
approved this month, it will be 5% for its entire 3-year
duration.

If interest rates go down further (hard to imagine), my
risk is also minimal as I can always prepay the loan
in full (part of the reason why I want to keep it in a
liquid savings a/c is for this, as well as repayment
of 401K loan in case of change of job).

Thanks a lot for the assistance

-- Shankar Prasad
shankar_v_prasad[at]hotmail.com

Shankar Prasad wrote:
- quote -

A: you can't do it.

Factor in the taxes you'd pay on the investment income outside of the
401k and this would be a slim winner at best. And a quick turn of
interest rates could turn it into a loser. I can't imagine why you'd bother.

-Tad

In article <18875a5c.0406020814.51dd8951[at]posting.google.com> , Shankar
Prasad <shankar_v_prasad[at]hotmail.com> wrote:

- quote -

This seems like a whole bunch of work, expenses, and chances for
things to go wrong for little or no profit. I personally would
never consider doing something as round-about as this.

My questions are:

1) what are you trying to accomplish?

2) what is wrong with the mutual fund choices in your 401K?

3) could you accomplish the same thing by using an IRA and
investing in the funds of your choice?

Unless I am missing something key, your plan looks like a text book
set-up for an illustration of Murphy's law in action.

-john-

--
================================================== ==================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ==================

Hi

I had a question about deducting interest paid on 401K Loan as
"Investment Interest". Background:
- my 401K is currently significantly invested in money market (CPMXX)
paying less than 1.00%. At present, I am not comfortable putting this
elsewhere in stock/bond fund. My employer does not offer a Stable Value
Fund, which I would like.
- other money market options (such as Virtual Bank savings a/c) are paying
more than 2% (about 2.14%).

I would like to withdraw some amount from my 401K as a loan
(permitted by my employer) and put it away into either ING Direct
(www.ingdirect.com) or Virtual bank (www.virtualbank.com)'s
Savings Account. Both of these are FDIC insured and pay more
than 2%. I will have to pay an interest rate of 5% (calculated
as prime + 1%, but fixed for the duration of the loan) for the
401K loan, which is deposited into my 401K account. There is
a $50 loan setup fee.

With this maneuver, I expect to achieve two things:
- my 401K account will effectively earn 5% on the loaned funds
(rather than CPMXX's 0.93%)
- since the 5% interest comes from my repayment, it kind of
increases the amount I am able to effectively contribute to 401K

Cashflow-wise, I am at a small disadvantage, as the loaned
funds earn 2% (taxable), but I have to pay 5% (tax-deductible ?)
I believe I can handle this cashflow issue.

Networth-wise, the benefit is that the 401K Loan balance earns
2.14% (at Virtual Bank), rather than 0.93% (CPMXX). I will
invest the loan proceeds only in safe investment (like the
FDIC savings a/c etc) so that there is no risk, as well as
ensure liquidity in case it needs to be repaid quickly (like
change of employer).

My question is whether the 5% interest being repaid from my
paycheck (to the 401K Loan) can be considered as an "Investment
Interest" Deduction (on Schedule A/Form 4952 ?) The loan
proceeds check will likely be deposited into my personal
checking account (which handles my salary and other expenses)
and then EFT-transferred immediately to a new ING Direct
or Virtual Bank account. So, I should be able to trace that
the loan money was used to invest in the savings account.
I was wondering whether the fact that the repayment was to
my "own" 401K account would affect deductibility of the
interest as "Investment Interest".

I already use Itemized Deductions (due to mortgage interest).
I expect to have enough investment interest - other savings a/c
interest (1099-INT), money market distr (1099-DIV), other
dividend distributions from existing VWEHX (Vanguard High
Yield Corp Fund) etc, so that "Investment Income" exceeds
"Investment Interest". If it doesn't, I guess I could
carryover too.

I believe this maneuver makes financial sense only if the
5% interest I pay is deductible - since the interest paid
will be subject to taxes (at ultimate 401K withdrawal time).

Any suggestions on alternative safe & liquid investments
(the farthest I could go on liquidity is 3 months or so)
for this (instead of ING/Virtual bank) are also invited.

Any suggestions on the usefulness or otherwise of this
"401K Loan - invest in Savings account" plan are also invited.

--
Regards
Shankar Prasad
shankar_v_prasad[at]hotmail.com