Today we had our annual benefits meeting with our firm's benefits guy. Having no spouse and no dependents makes life pretty easy for me at these things. My only decision is how much I want to put away in a medical spending account for things like co-pays and deductibles and quasi-medical expenses like eyeglasses etc. It's a sensible thing to do but you don't want to set aside too much because whatever you don't use in a particular year is gone forever -- you don't get it back. Projecting forward I think, "I'm not going to get sick this year, I never get sick." But I can be pretty sure I'll drop a pair of glasses overboard or lose one or something, and pretty sure I'll go to the doctor's at least once for my annual exam and maybe to the dermatologist to check out a blotchy mole or something else of mild concern. So it's worth having something in the account. This year I just had to figure out how to clean out the last $195 from the account before it expired so I'm modifying downward.
Someone asked the benefits guy about 401(k) loans, a matter of some interest to me as I consider my various financing options for this car purchase. He said, they're a lousy choice because you get taxed twice on the money. The Big Guy disagreed, saying that would always be the case when you take a loan and its better to pay interest to yourself than to someone else, and pretty soon this benefits guy was debating four or five lawyers about whether it was or wasn't a good decision and what considerations were relevant to determining whether it was. The benefits guy was pretty good humored about the whole thing but the rest of us around the table had to start making fun of all of them to get them to agree to disagree and get the meeting back on track.
Sounds like an amusing argument. Did anyone mention the opportunity cost of a self-loan from a 401(k)? That was the reason everyone gave me. Would the interest you paid yourself make up for the investment gains you'd lose while the loan money was out? That's the bet.
Posted by: pjm | February 24, 2004 at 03:36 PM