Reply to Explain to me why it's a bad idea to borrow against your 401k?

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[quote=Anonymous][quote=Anonymous]I wondered about this too, but couldn't get any of the posters proclaiming it to be a dumb idea on that other thread to explain why.

In my case, I can only borrow a small amount (10% of the total, maybe?), BUT the 3% interest I pay on the loan goes right back to my account. I'm paying myself to borrow from myself. HOW is this not better than paying a credit card company a much higher rate? [/quote]

I think it can be better but there are two risks that I see:

1) If you lose your job, the loan is typically due in full.  How would you pay that?  You should probably check what the interest goes up to if you can't or if there is some sort of penalty - it might be considered a withdrawal at that point which would mean taxes and penalty.

2) You haven't technically saved for retirement those years you were building up your 401k because you are taking the funds out and not getting the returns on your investments.  In this market that doesn't seem like a huge issue but who knows where the market will be by the time you pay back the loan.  You may have missed out on the opportunity to buy in a low market.[/quote]

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