Pod Insights The Clark Howard Podcast 05.19.25 The True Costs Of 401(k) Loans / Checked Bags - Lost & Found About this episode The 401(k) is a great retirement instrument because saving is automatic and investments grow over time. So is it ever OK to borrow from a 401(k)? Know the “opportunity costs” involved. Also - good news if you like to check bags on flights. 401(k) Loans: Segment 1 Ask Clark: Segment 2 No More Lost Luggage!: Segment 3 Ask Clark: Segment 4 Mentioned on the show: Is a 401(k) Loan a Good Idea? Almost Never How To Open a Roth IRA Enrolled agent information | Internal Revenue Service National Association of Enrolled Agents Should I Buy an AirTag for My Checked Airport Luggage? What Is an eSIM? 5 Things To Know - GIGSKY - International eSIM Data Plans Using Cellular Data Internationally: Buying a Local SIM Card Deposit Insurance FAQs | FDIC.gov Can I Trust the FDIC’s Recommendations on Getting Insured for More Than $250,000 at a Single Bank? Are Credit Union Deposits Insured Up To $250,000? Clark.com resources: Episode transcripts Community. Clark.com / Ask Clark Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
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1:05 Speaker 02 I'm so glad you've joined us here on The Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you to make better financial decisions in your life. I want to address something head-on, and I'm going to make you potentially uncomfortable. When's it okay to borrow against your 401K? Also, coming up later, I want to talk about what you should be doing to protect yourself if you like to check bags on an airplane. I don't know why you would, but if you do, we're going to talk about that.
1:44 Speaker 02 So 401Ks are something that half of us in the United States are privileged to work somewhere to have access to one. Because a 401K does something that makes a big difference in your life. Because left to our own devices to go out and set up our own Roth IRA, most of us might actually get the account set up, but then we forget to fund it. An important thing, right? It's behavioral. Finance, you know, that something being done automatically is something much more likely we stick to. Something that manually requires we take an action is a harder thing for us
2:27 Speaker 02 to do. So that's why the 401k has been kind of like a magic pill to get people saving for the future who might not have otherwise. Cause the money just comes out of your check before you get it. We auto enroll our employees at my company and we do, I think it's automatically enroll them at 6% and I match it with 6%. So if they do nothing, they're saving 12% of their pay in our default as we put them in a target retirement fund. Cause I want people to, as force of habit, to be saving money for the future. How do you mess that
3:07 Speaker 02 up? You take out loans against your 401k. And I know, I know, everybody says, oh, I'm paying myself back. I'm paying interest. But the thing is, over the years, when you take out a 401k loan, you are having what's known as opportunity cost. Where you no longer have that money in there and two years out of three, you're going to have a nice gain on your account from what the market generally does going up. The money you pulled out is a participation penalty. That money's not there to grow. Plus, to add to the fund,
3:49 Speaker 02 because you're having to pay that loan back you took from the 401k, being what consumer behavior is, people reduce their automatic contribution to the 401k while they're paying back a loan. So it's a double whammy. You're losing the earnings on the money that was there because it's not there now. And you're not contributing what you were contributing before because you gotta pay back that loan. And if you lose your job or decide to quit, That money's due right away. If you don't have it, you've created a premature withdrawal from the 401k. You owe tax on the money plus a 10% penalty.
4:34 Speaker 02 Can you get it? I don't like 401k loans. Why are they even allowed? Because it's the same reason Congress in its wisdom did something I love. Where with 529 plans for college savings, they created this escape valve where you could move money out of the 529 tax-free into a Roth IRA. Because a lot of people who just weren't sure if their kid was going to go to college, weren't contributing to a 529 and then didn't have money to pay for college. So they came up with this escape valve where you can move that money into a Roth. So that even if you don't know if your kid's going to go to college,
5:14 Speaker 02 529 from the get-go is a great way to build up tax-free money for them. So with the 401k, the reason the loan provision's in there is because there was so much fear that people wouldn't contribute to one. If they were worried when they needed money, they couldn't get to it. Problem is it becomes habit-forming. And there can be an absolute financial emergency in your life that you'll have to define, I won't. That means you feel like you gotta pull that loan from the 401k. And there are gotta times. But doing it as a habit, using it as your mad money fund,
5:56 Speaker 02 that sabotages your future for your present. And do not borrow from a 401k to buy a car, buy a boat, buy a jet ski, buy anything that's recreational, voluntary, whatever. Never for lifestyle, never for that vacation you want to take. Don't do it.
6:22 Speaker 03 Okay.
6:23 Speaker 02 Enough guilt trip.
6:24 Speaker 03 Jenny in Kansas says, "We've been talking to our kids about the importance of saving and investing. My nine-year-old is very interested in investing. We would like to help him start a custodial Roth IRA. We own our own business and could pay him a few hours a month to shred papers. The problem is, age 14 is the minimum working age for the state of Kansas. I would love to hear your thoughts and advice on how to get him started."
6:49 Speaker 02 All right. So Jenny, I love the work ethic. I love your nine-year-old working in a family business. So the child labor laws are really about people working for a stranger, working in a dangerous job, whatever. I would be very, very shocked if the state of Kansas or any other state would come down hard on you for having your kid do some low-risk kind of things in a family-owned business. And as long as you document that your child is actually doing the work, you pay them a paycheck, take the money, they put it in the custodial Roth, I think you're just fine. So...
7:31 Speaker 03 Your kids were in commercials, like a couple of your kids, right, when they were younger?
7:35 Speaker 02 Yeah, which the law specifically calls for. And so both of my younger children, my older daughter never did this, but both of my younger children were in commercials or print jobs from when they were very young because with Lane being an actress, they like to hire the kids of an actor who understands the deal and all that. So they both, they have very decent Roths now as adults from the jobs they did as kids. But that is an exception to child labor laws. There are specific rules about how you got to treat a kid on a work site for a commercial or a print job. Not always followed, but there are rules there.
8:16 Speaker 03 Tyler in Florida says, "Hoping you can direct me to finding health insurance for my adult child living at home. I'm a single father and active-duty Air Force officer stationed in Orlando, Florida."
8:26 Speaker 02 Thank you for your service to our great nation.
8:28 Speaker 03 "I have two children living at home with me, a 15-year-old son and a 20-year-old adult daughter. Currently, my daughter's experiencing a failure to launch and is not in college and is searching for a job. My daughter will turn 21 in a few months and no longer be considered my dependent and lose TRICARE healthcare coverage. I have explored the TRICARE young adult option, but coverage is expensive and unfortunately, not an option I consider. My daughter's currently using her healthcare benefits for counseling and mental health. Losing healthcare would certainly delay any progress she's been making towards launching. Please help."
9:01 Speaker 02 Tyler, you know, something I've never understood, when the feds adopted the Obamacare system, insurers were required to allow you to maintain dependent coverage on a child till their 26th birthday. And even if they're out living on their own and all that till age 26, but the government didn't require that at TRICARE. I don't get it. I mean, you're a military family, earning less money than you could in the civilian world. To not provide you that option blows my mind. But the alternative, and I want you to compare
9:45 Speaker 02 it for your daughter, is to buy a policy for her on the Obamacare exchange. Because at least for now, she will qualify potentially for a free or really cheap policy because she has not launched. That's as long as Congress keeps the subsidies in place based on income.
10:07 Speaker 02 And you can compare what it would cost, you just go to healthcare.gov, what it would cost to buy a policy for her there versus the Tricare Young Adult Option, which may, as crazy expensive it is, may be the best alternative, weirdly. Because otherwise, if you go buy what's known as a non-compliant plan, it's not going to cover the counseling and mental health care that she's getting right now.
10:38 Speaker 03 John in South Dakota says, "My family member's manufacturing business went bankrupt and lost everything due to his business manager embezzling funds and maxing out lines of credit, wiping records, and running. He filed all the needed paperwork and authorities for identity theft and crimes with authorities. Needless to say, his bank accounts, credit, and everything is a mess, and his business and personal taxes haven't been filed for years now because the records are all gone. He now has a new job, and he's getting things slowly back in order, but still is at a loss of where to start with taxes and organizing his finances. Is there any organization or government department that can help him know where to start?"
11:20 Speaker 02 So, John, it's not an organization or government department. It's going to be, in his case, hiring an enrolled agent. An enrolled agent is somebody who is registered and licensed to represent with the IRS. They're an expert in taxes. In his situation, if it were a situation where he had a lot of obligations to the IRS and also had a really nice stream of income, normally the IRS has a real target on you for the back pay and all of that. But not being in that situation, then you'd hire a tax attorney in a situation like that.
12:02 Speaker 02 In this case, an enrolled agent, I think, is the right route. You can look up for your family member, how to find an enrolled agent online, and find somebody near them if they live in South Dakota like you do. Find one near you and...
12:23 Speaker 02 They might be at the two ends of the state in Rapid City or Sioux Falls, but maybe you'll find one wherever he is in the state. And that would be where to start. This is such a terrible thing. And gosh, it's not reported that heavily. It's very common in a small but thriving business where there aren't enough, because of the size of the business, aren't enough internal controls, that one crooked employee can harm a business or even destroy it by being in a position to steal with no prying eyes watching.
13:05 Speaker 02 One thing I'll tell you, if you have a business that's growing quite rapidly, you always want to have your check set up or a payment system set up where it requires two authorizing signatures on a check or a double authorization for electronic payments to have prying eyes of an owner on an operating person as the money is leaving the business, that it's never being mishandled, misappropriated, or flat out stolen. I'm really, really sorry that that happened, not just to your relative,
13:47 Speaker 02 but the employees, the hardworking employees who lost their jobs as well. Coming up ahead, lighter topic, checking bags this summer. There's something you need to do to protect yourself when you fly.
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15:48 Speaker 02 Checking bags. I don't do that thing. You look at anybody who travels continually, and they've got it down to a science. A lot of people use those compression things, they're like little bags that magically shrink their clothes. There's all kinds of YouTube videos of ways that you can cram massive amounts of clothing into a carry-on for a longer trip. There are people who on YouTube show what clothes they take and how they use layers and all that. So just so you know, as a guy, it's a lot easier for me, but when I travel to a cold
16:33 Speaker 02 weather climate, which Lain and I just did recently, because it was pretty chilly when most of our trip in Italy, so what do I take? I take simple t-shirts, and then I take a sweater, a pullover, and a sweatshirt. And so I just change out the t-shirt every day, take enough for the trip, enough underwear, enough socks, whatever. I'm able to pack for 10 days without breaking a sweat in a carry-on bag. You think I'm crazy, don't you? My wife can do it too. And she is the most fashionable person I've ever seen. I don't have an ounce of fashion in me.
17:18 Speaker 02 But Laine is able to do that. And she's not alone. So many people can. You avoid all those horrific baggage fees. But let's say you have status and you avoid the baggage fee. Or you got one of those cards that covers one bag for you checking. And you do want to check a bag because you just hate yourself. No, you want to check a bag, standing in line to check the bag. Watching that carousel go round and round and round. With the bags not showing up, but you have. And then the bags eventually show up, but maybe yours doesn't. Yours never comes on it.
18:03 Speaker 02 I mentioned this before, I'm mentioning it again because I got improvements for you. Airlines that used to be hostile to you putting air tags in your bag. They now like it and a lot of them are integrating it into their lost baggage system. That's right. And Apple, seeing this as a real opportunity. The price of the air tags keeps going down. There's sale after sale after sale where you got like four of them for 60 bucks, 65 bucks. And you just pop that thing in and you're going to be able to know where the bag is. When the airline has no idea where they sent it where they shouldn't have. So this works as a way to do it.
18:48 Speaker 02 Remember the story we told last time about the air tags? That the woman could never get the airline to get her bag and she knew where it was. And she flew to where it was and found her own bag at baggage claim.
19:02 Speaker 03 So crazy.
19:02 Speaker 02 Flew home. I mean, who should have to do that?
19:05 Speaker 03 And there are competitors to air tags. I don't know if eventually.
19:08 Speaker 02 Yeah, for Androids.
19:09 Speaker 03 Right. And we often have deals on those on Clarkdeals.com.
19:13 Speaker 02 Every time there are deals on those because our Clark Deals audience loves travel. And so we're always posting the deals on air tags and their competitors.
19:24 Speaker 03 Also, speaking of travel, they do have a second travel newsletter that they're publishing now at Clark Deals, which I think is a lot of fun.
19:29 Speaker 02 They, we.
19:30 Speaker 03 We, we, the team. I call it the team because I'm not writing it. The team is doing it and I think they do a great job. Okay, Sherry in Florida says, "I watched a YouTube video promoting GigSky. Supposedly it's a cheap wifi for cruises and pretty much anywhere else. It seems like a good deal. Is it legit? Or would I be wasting my money?"
19:49 Speaker 02 Okay, so let's talk about just using, and these are eSIMs, electronic SIM. Almost all phones now take eSIMs instead of a physical one. You can, before you go on a trip, anywhere in the world, pretty much, you can buy an eSIM that will save you a fortune versus using the calling plan you have from T-Mobile, AT&T, or Verizon. So, the cruise angle is a newer angle where you can buy one that specifically works on cruises. And GigSky is the one that is most prominent in this space.
20:29 Speaker 02 So GigSky sells, most cruise ships that Americans go on are Caribbean cruises or in the Americas. So, these things for a week-long cruise tend to cost about 50 bucks for the week. But you do not get unlimited data. This is just for staying in touch, for reading your email and texting. Because you only get three gigs of data. You know what three gigs of data is? Not a lot. You're not watching videos. You're not having FaceTime calls or WhatsApp video calls. But you're able to stay in touch on the ship.
21:10 Speaker 02 Generally, you have to get pretty far off from shore and then you go through the process of switching over your SIM to in your second slot, it'll be in there, to the GigSky, and you do it that way. Why do people do this? Because maybe they're working on a big business deal and they need to keep access or whatever. The internet from the cruise ships... is very expensive, but it will be normally unlimited. The cruise ship Wi-Fi now is very, very good on most ships now because they're using the Elon Musk thing, the Starlink, and it works so well.
21:50 Speaker 02 I was on a cruise that had Starlink and it was flawless, the whole cruise. Expensive, but flawless. So this is for a limited purpose, limited use, and other cruises, other parts of the world, it's going to cost you a little more for the data with GigSky.
22:11 Speaker 03 Dave in Connecticut says, please correct me if I'm wrong. I think banks are insured up to $250,000 per person, per account, or up to $500,000 on a joint account. But what happens if you have more than one account with the same bank, such as a savings account, CD account, money market, et cetera? Would each account be separately insured?
22:30 Speaker 02 No.
22:31 Speaker 03 Also, do credit unions operate the same way being insured by NCUA?
22:35 Speaker 02 Yes. So you can stretch the insurance per institution and how you title an account. It could be a trust, could be a retirement account, could be a personal account, could be a joint account. There are ways, and if you go to fdic.gov and go to their frequently asked questions section, there's a briefing that shows you how you can multiply the quarter million coverage at an individual and be the same for NCUA, how you can stretch that out.
23:15 Speaker 02 Never, ever rely upon the word of somebody in a bank branch or credit union. As we learned during the bank failures, back during the banking scandals and the OOs led to the Great Recession, the position of the FDIC and NCUA was either oral or written representations by a bank officer meant nothing. The only thing that matters are the rules of FDIC and NCUA, which you can read, and again, you can just go read the FDIC briefing because it applies to both. Easier answer, put your money, if you've got that kind of thing, put your money in a
24:01 Speaker 02 Federal money market account, money market fund, at one of the big, low-cost outfits, preferably Vanguard, you could do Fidelity, you could do Schwab, and not only you're going to have something better than FDIC insurance, you're going to have a direct obligation of the federal government earning more usually than what you can earn on a CD or savings account at a bank or a credit union.
24:27 Speaker 03 Robin in Ohio says, "A few months ago, I sent an email about how upset I was that a private equity group had purchased a beloved chain of family restaurants in Ohio, which I will call Franco's Billy Bob Restaurants."
24:38 Speaker 02 I remember this!
24:40 Speaker 03 And for some reason, which I don't understand, intentionally withheld lease payments so the restaurants would be foreclosed on. Employees who had worked for the restaurants for decades lost their jobs right before Christmas. I saw that as a very dark side of capitalism. But here's a happy update. After most of the Franco's Billy Bobs were closed, the Billy Bob chain of restaurants in Michigan got into the picture. The Billy Bobs of Michigan are independent of Franco's, and they decided to buy the closed Franco's Billy Bob restaurants in Ohio and reopen them. But the Franco's Billy Bobs said they had exclusive rights to the name of Billy Bob in Ohio, and they took the Michigan Billy Bobs to court to stop them from using the name. The court hasn't ruled yet, but in the meantime, the Michigan Billy Bobs have started buying the closed restaurants and
25:24 Speaker 03 are reopening them under the name of Billy Bob's Girlfriend, who is a comic book character from the 1950s. The food is very similar to what customers are used to getting at Billy Bobs, and many of the former Billy Bob employees have gotten their jobs back. I admire the ingenuity of the Billy Bobs of Michigan, and this is a great example of things working out for the good under capitalism."
25:45 Speaker 02 Robin, I love this story, and obviously, people from the Midwest know what chain it is. I'm going to leave that out here. I've been reading about this ongoing fight. I read about it in the Detroit Free Press, that what's going on with all this corporate drama, and...
26:06 Speaker 02 What good has private equity done somewhere in the United States? Could somebody with a PE firm tell me where it's not been horrible for the public and horrible for the workers at a firm that PE comes and infests with its ugly virus? Maybe there is somewhere that it's been a good thing. I don't know where. I'd love to hear from you if you're a PE advocate, private equity advocate. But thank you very much for joining us today. I hope you enjoyed today's podcast and that you go have a nice burger in Ohio at a formerly
26:51 Speaker 02 closed location. Anyway, thank you for being with us and being part of our empowerment zone where it's all about you learning ways to save more, spend less, and avoid getting ripped off. And know what's coming up on Friday. Clark stinks.
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