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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10128
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a loan out 403b plan from my ex employer. I am

Customer Question

I have a loan out for my 403b plan from my ex employer. I am thinking now to withdraw all the money out of that 403 because the market does so bad. I was told that then I would default on that particular loan I have and it would be a taxable event. Can
you explain to me how is that going to affect it?
Submitted: 1 year ago.
Category: Finance
Expert:  Lane replied 1 year ago.

Hi,

...

Yes, either not paying back the loan within the 5 year period OR withdrawing will cause the amount pulled from the plan to be added o your taxable income for the year.

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Also, if you are under 59 and 1/2, there will be an additional 10% tax penalty.

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So, if your other income for the year puts you in, say, the 25% tax bracket, then doing this would cause you to lose 35% of the amount withdrawn in taxes.

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Also, markets do what's happening right now every few years, especially when we are in a period of uncertainly with only a year or so to go before a presidential election...What the market's reacting to right now is CHina... our underlying economic fundamentals are actually the strongest we've seen since 2008

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Markets historically act this way in the year or so before and electioin and typically do very well (correcting back up to what would be the normal growth rate of 7 to 12%) once we know how the election turned out (certainly, ability to plan and invest for business).

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So to withdraw right now would not ONLY be a taxable event but by pulling out of the investments right now you'll be locking in what always turns out to be a paper loss, over time.

Customer: replied 1 year ago.
What is a paper loss? Do you think I should not withdraw?
Expert:  Lane replied 1 year ago.

Yes, I do.

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A paper loss meaning that the value today is artificially low, as a reaction to what's going on in CHina AND magnified byy the uncertainly that ALWAYS exists in a pre-election year.

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The market WILL recover ... but if you're not IN that market, you sell out at this very low point and are stuck with this low valuation

Expert:  Lane replied 1 year ago.

Since 1900, there have been 35 declines of 10% or more in the S&P 500. … Of those 35 'corrections,’ the index fully recovered its value after an average of about 10 months.

The S&P 500 more than doubled in value from March of 2009 through 2013 with an annualized return of more than 20%.

The S&P 500’s average annual total return over the past 50 years is 10%

The average equity mutual fund, 10.7% over the last 10 years

The average mutual fund INVESTOR? ... 2.7% … WHY?

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· They ran scared at the lows (locking in those paper losses that always come back by selling at the lowest of times) … AND,

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· They speculate at the highs (waiting until things have been doing great before jumping back in).

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Let’s not be part of that herd, those lemmings. Stay strong. Invest with knowledge rather fear.

I’ll be very glad to discuss things with anyone, but likely, unless your time frame or goals have changed, I will recommend that you notchange a thing.

And if you’re saving on a regular basis (like my 401(k) clients). .... or want to start to dollar cost average into the market .... Relish this opportunity

Expert:  Lane replied 1 year ago.

That was an excerpt from an email I sent to clients today .... Don't be one of those that run scared at the lows and speculate at the highs

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Now is exactly the WRONG time to sell.

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