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Professionals who advise on 401k have not grasped the amazing opportunities the tax legislation presents – in a number of ways – to workers for retirement planning, to employers as a funding tool for operations (especially advantageous in boosting marketing and sales campaigns or simply to supplement wage packaging) and for business investors requiring capital to make acquisitions. The non-specifics as for what purposes workers may borrow money from their 401k fund provides a pandora of possibilities. However neither workers nor professional advisers have the imagination as to the multitude of ways 401k loans may be used.
An obvious use is to provide funds for contributions to 401k plans – by employees and/or employers. With borrowing cost currently less than 5% it should not take an Einstein to realize the merits of having a tax free return on the investment and a structured ROI of 500%. I am yet to see an advisor advocating such an ultra-rational application of 401k funds.
With money available in a workers 401k fund and no restrictions – they can lend funds to their employer so a maximum matching contribution can be made to supplement their personal 401k contributions each year. (The various economic analyses possible present a pandora of financial options with amazing returns)
For instance with a borrowing cost of 5% – nominally $1,000 – materializing of a $20,000 tax free return, while incredible, is an investment opportunity too good to believe – which seems to be the case with professional advisers who appear to be frozen in the headlights, incapable of appropriate action.) Even though an employer may not be inclined to match employees personal contributions at maximum economic rationality should prevail and dictate that wages be restructured with a cost savings for employers to facilitate repayment of borrowings for less than zero cost.
The most fantastic benefit of 401ks if the ability for Employers to truly partner with their workers by borrowing back employer matching contributions, increasing working capital for application to marketing and sales campaigns yielding a tripling of revenue against increased expenditure. The consideration given by employers who do borrow may vary from a set rate of return – above employee’s cost of funds, a profit share or portion of the increase in revenue. #tax #financial #financial #accountant #financialliteracy #financialplanning #money As this might be your first outing in to an unexpected neck of the woods ask your accountant to accompany you on a constructive visit to improve the cash flow management of workers wages, 401k contributions and beefed up marketing & sales campaigns. Give me a DM asap to set an appointment for financial enlightenment.