Re:Jobless claims, total unemployment level worse than expected
by catblast on Thursday June 04, 2020 @01:04PM
(#23419091)
401k backed loans are nothing new. The incentive is the avoidance of tax penalties (or less obtusely that's the disincentive at the federal level to just withdrawing). It's not to prevent stock sell-offs, it's to prevent people for whimsically withdrawing from their 401k/retirement account..
Nothing stops your friend from selling everything and leaving it as cash or some non-stock instrument in the account.
Re:Jobless claims, total unemployment level worse than expected
by dmitriy_ko on Thursday June 04, 2020 @01:39PM
(#23419479)
When you take out 401K loan, the plan sells equivalent amount of shares and gives you the cash. So it's still causing market sell off. As you pay it back the shares are bought again.
Re:Jobless claims, total unemployment level worse than expected
by greenyoda on Thursday June 04, 2020 @03:45PM
(#23420913)
A mutual fund doesn't own specific shares of stocks on behalf of an individual - it's just one big pool of assets, and the individuals own shares of that pool, not the underlying securities.
So if there's still lots of cash coming in every month from new payroll deductions, there might be no need for the fund to sell stocks to pay out a loan. They'd just buy fewer stocks that month.
They'd only have to sell stocks if the total cash going out (loans, plus distributions to retirees) exceeded the total cash coming in (payroll deductions).
If that's happening at scale, then those 401k accounts are getting massive liabilities stacked up against them.. which falls apart if their value goes down.