401k loan cash flows

KnnNike

I am not understanding how the cash flows are supposed to work when you set up and track a 401k loan in Quicken. I recently borrowed $50k against my 401k; I make monthly payments back into the 401k from my checking, and everything (principal + interest) gets reinvested.

So I tried setting up the loan inside the 401k using Holdings>Account Attributes>Create a New Loan. This created two new entries in my Property and Debt section - a $50k loan, and a $50k asset linked to the loan.

So how are the cash flows supposed to work? The payback money starts in my checking account and needs to end in my 401k account (where it gets reinvested). Does it go:

1. Checking —> loan (loan balance becomes less negative)
2. Loan —> asset (loan balance becomes more negative; asset balance becomes more positive)
3. Asset —> 401k (asset balance becomes less positive)

This doesn't make sense, because with every sweep from checking to 401k, the loan account will end up with the same balance as at the start. In truth, it seems like the asset account shouldn't exist, since the "assets" ultimately show up again in the 401k account.

Quicken Kristina

Hello @KnnNike,

To answer your question about how the cash flow works:

The short version -

The Asset and Loan accounts are optional accounts for your convenience. The money is added/removed from your 401k in Quicken through the Update 401(k) Holdings wizard (accessed via the action gear to the upper right of the investment account register). So the flow would be:

1. Create new loan via Holdings>Account Attributes.
2. Asset Account —> Checking
3. Update 401k in Quicken through the Update 401(k) Holdings wizard
4. Checking —> Loan Account
5. Update 401k in Quicken through the Update 401(k) Holdings wizard

The more detailed explanation -

When you first create a loan against your 401k in Quicken, it gives you the option to set up an account to track the balance of the loan. If you choose to set up the account, it will create an asset and a loan account in your Quicken file. The asset account balances out the loan account so that you do not negatively impact your net worth.

Note: Your 401k in Quicken does not actually decrease to reflect that loan being taken out until you go to the action gear near the upper right of the account register and select "Update 401(k) Holdings", then follow the prompts in the wizard that comes up.

Since the asset account exists just to balance out the loan account, you would likely want to transfer the funds from the asset account to the account (or accounts) that the loan money went into. As you pay back the loan, you would transfer funds to the loan account to show the amount borrowed decreasing.

Note: For the repayments to reflect in your 401k account in Quicken, you would need to go to the action gear near the upper right of the register, select "Update 401(k) Holdings", and follow the prompts in the wizard that comes up.

If you prefer not to mess with the asset and loan account, when you first create the loan in your Quicken, make sure the "Set up an account to track the remaining balance of this loan" box is unchecked. Then, you'll be able to see the remaining balance under Holdings>Account Attributes, but there will be no extra accounts added into Quicken. In the sample image below, Testing Loan 3 shows the balance in blue because it's a link to the loan account Quicken created. Testing Loan 4 is in black because I opted not to create accounts to track the balance.

Note: Your 401k in Quicken does not actually decrease to reflect that loan being taken out until you go to the action gear near the upper right of the account register and select "Update 401(k) Holdings", then follow the prompts in the wizard that comes up.

I hope this helps!

KnnNike

@Quicken Kristina this is helpful, thank you!

One confusing part though…neither my 401k nor my wife's 403b show 'Update 401k holdings' when I click the gear in the upper right…what would I do in that case?

Quicken Kristina

Thank you for your reply,

Are the 401k and 403b manual accounts, or are they online (able to update via One Step Update)? If they're online accounts, then the information may update when you run One Step Update (provided that the financial institution has made the information available to Quicken).

Thank you!