Husband’s Family Overspends on Christmas

Posted on November 1, 2012 by Mary Hunt in Dear Mary 11 Comments

Dear Mary,

My husband’s family spends lavishly every Christmas and it always makes me feel pressured to reciprocate. For example, last Christmas, they bought my four-year-old daughter a $300 DVD player. And they gave me a $150 gift certificate to my favorite salon. While their generosity is greatly appreciated, my husband and I can’t afford to break the bank Christmas shopping. Plus, I’m worried they’re sending my daughter the wrong message about the meaning of Christmas. How do I make it a nice Christmas for everyone without looking like a cheapskate? Shannon, Indiana

Christmas Gift

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Dear Shannon,

Could it be you’re putting pressure on yourself to be the Family Christmas Magician? You have my permission to turn in your resignation. You can’t control what other people do. What your daughter learns about the real meaning of Christmas she’ll learn from you and your husband, and not just from what you say. She learns from your attitudes and actions, too. Teach her that the gifts we give express what’s in our hearts. We shouldn’t give to get approval or to get something equal in return.

How about letting her help you make gifts this year? Here’s an idea: Create a family calendar that highlights all of the important family dates and events for the coming year. Once completed, make a color photocopy for each member of the family. Should she (and you!) receive gifts from others, accept them as the expressions of the givers’ hearts. And don’t miss any opportunity to teach her how to be gracious and genuinely grateful. And hey, enjoy that spa day!

Dear Mary,

My husband and I just found out we’re expecting our third child. We would like to add on to our home. My husband found out that he can take out a loan from his 401(k) at a super-low interest rate, then have the amount deducted from his paycheck every week to pay back the loan to his account. It sounds too good to be true—and that’s making me nervous. I don’t want to jeopardize our future for an extra two rooms. He thinks I’m being too worrisome. Is he right? Doti, email

Dear Doti,

Most 401(k) plans allow this, but the conditions can be severe. First there’s the matter of double taxation. The money in his account has never been taxed. Those are “before-tax” dollars. If he takes a loan, he will be repaying that money with “after-tax dollars.” For every $1.00 he borrows he’ll have to earn $1.28 or more to net $1.00 in his paycheck to repay the loan. Interest is on top of that. When he withdraws those same dollars in retirement he’ll pay taxes on them again.

Then there’s the matter of life’s uncertainty. If he leaves his employer for any reason before the loan is repaid, the entire balance will immediately become due. If you can’t do that, the loan balance will be converted from a loan to a cash withdrawal. He’ll get socked with a 10 percent penalty plus the IRS and state tax collector will be knocking on your door to collect taxes on that “cash withdrawal.” And if that’s not enough, you must consider the potential loss of investment growth. Overall, borrowing from his 401(k) may be so troublesome this should be your last option, not your first.

Question: Have you experienced something similar to Shannon’s or Doti’s situations? What advice would you give them? Comment here. 

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Posted on November 1, 2012 by Mary Hunt in Dear Mary 11 Comments
  • MPB

    401k loans are not double taxed. Nonetheless, it is not good to use funds planned for long-term needs for short-term wants.
    http://www.federalreserve.gov/pubs/feds/2008/200842/200842pap.pdf

  • http://www.facebook.com/maria.root.stahl Maria Stahl

    This input is for Dodi. Mary’s advice is wise, but do check on ways to mitigate some of the concerns she raises before giving up on this option.

    Ask about the issue of the loan becoming due in full if employment is terminated. Possibly this could change if, instead of having the payments auto deducted from your husband’s paychecks, you pay them yourself, with a check. Get it in writing if so. We borrowed against an employer sponsored tax-deferred annuity many years ago, and it did not matter by whom we were employed at the point when we took out the loan.

    Also I do not believe there is lost interest income, as you do not actually withdraw money to borrow it, you borrow against the balance in the account. The balance continues to earn. In fact, you are providing the increase on the part against which you are borrowing, as that is one of the ways the money is being invested and is growing. Again, check on this. My situation was with an annuity, not a 401-K, so it may not be the same.

    Which is better, to have a lien against some of your retirement money or a lien against your home? If you take out a second mortgage to do this addition, the lien will be against your home.

    I don’t recommend either way. Babies are little, kids love sharing rooms with siblings when they are little. If it were me, I would not build on at all, not if it meant borrowing most or all the money.

  • CheapCheapa

    This is input for Shannon regarding her husband’s family overspending for Christmas. I can completely relate. In fact, my husband’s family likes to go in together on gifts for other family members (that they’ve requested, might I add!) that are quite pricey! When we’re approached to participate, we either have to cough up our share of the price tag, or tactfully say no and risk feeling like cheapskates! We have decided to go with the latter, and our carefully selected, within-our-budget gift baskets have been a huge hit! Not only are they chosen with each family member’s tastes in mind, but we really enjoy picking out each item and decorating the basket with love and care, which is, in the end, what Christmas giving is all about!

  • kaetra

    For Doti – Don’t forget that adding on to your house typically means your property taxes will go up too. Those extra two rooms could wind up costing more than you think in the long run. Also, it probably won’t add any significant value to your home in today’s market (if that’s important to you).

  • kaetra

    For Shannon – My MIL goes bananas at Christmas. Last year she sent nearly 50 presents for our only daughter and of those presents 45 were NEVER even played with. I can’t stop MIL from sending an avalanche and we can’t reciprocate in kind, so we just stick to our budget and let MIL do what she wants to do. At the end of January I take all the unused items to Goodwill and I don’t feel the least bit guilty about it. My daughter actually enjoys donating things she has no interest in using, and I think it’s made her appreciate that we are a very lucky family and she knows that there are other kids/families who need things more than we do. Meanwhile we’ve put a lot of traditions in place for our Christmas that do not revolve around gifts and those things are what our daughter enjoys most about the holidays. Things like our annual hot-cocoa & blanket open-window car drive around the town to see everyone’s Christmas displays, Christmas-day family game day, Christmas eve’s “new pajama” tradition, Christmas brunch, etc.

  • Joy

    Have to agree with Maria, our kids love to share bedrooms. We have only one girl and when she got old enough that we decided she needed her own space she was very upset. Sharing teaches them early about learning to live with and get along with others.

  • Jeanne

    I borrowed once from my 401k…it took forever to pay it back (I believe it took 5 years!) and I could not pay it back early. I don’t recommend it–I would never do it again.

  • Joanna

    Regarding the 401K withdrawal…Terrible idea.

    LIfe can happen when we least expect it. My husband is a manager and he has seen many situations with his workers, etc., I remember one scenario where a young couple “had to have” a bigger home due their family size increasing.
    Long story short—it was a disaster and the husband almost had a nervous breakdown. Declutter and be content with what you have. Emergency funds and margin in your life and finances will greatly help in sleeping well at nigh.

  • f8cone8

    Oh yes I made that mistake 20 years ago and it cost me 1/2 of my retirement. I took a loan, then took early retirement. The house it seems went down in value so I couldn’t make it up with the sale of the house. To make a long story short I ended up borrowing almost $40K from credit cards to get out of the jam I’d created. It took us 10 years to get out of debt. I’m proud to say we have stayed out of debt and have built a new nest egg thanks to the lessons we learned. Double the kids up and learn how you can live in a smaller home.

  • Wendy

    For Shannon – I am the MIL that does NOT go bonkers at Christmas and it has been really really hard for me to maintain my equilibrium in the midst of humungous harry deals. This year I am doing shoeboxes for each grandchild and picking out several things for each one, tailoring them to the interest of each child. I went into a local Michael’s craft store today and felt so much peace in seeing all that I could do that would be fun for us to give and fun for them to receive. ANd not bust my budget or dishonor Christ, whose humble birth is to be honored. Thankx so much. Wendy VA Beach

  • hope

    I’ve never taken a loan on our 401k, but we were surprised with a third baby. Our house seemed full already, and adding another to our dynamic seemed impossible. I wanted to move, cried at the thought of having to get a minivan. It’s over 5 years later and it was the best surprise ever! I love our family and wouldn’t change anything. We live within our means, which is hard, and sometimes “window shop” for a bigger home. I know we’re meant to be where we are … hoping that you’ll be at peace with your decision too. Congratulations on baby #3!