Reply to Should we pay back our 401k loan early?

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[quote=Anonymous][quote]If not, it is a pretty close call in my view, but I think given that its your retirement money and that [b]I don't think its a stellar year to be in the market anyway[/b], I would probably repay some or all of it. [/quote]

[quote][b]Just wanted to point out that in repaying the loan, it is basically the same thing as investing it - just within your 401K. When you put the money back in there, it starts earning for you again, instead of you paying yourself the interest.[/b] So either way if you invest the money or pay off the loan - you are getting market gains. But if you pay off the 401K loan, you are then free to change jobs as needed without risk of defaulting and paying a penalty.[/quote]

I was going to point this out too--if it's not a stellar year to be in the market, i.e., you don't expect market returns &gt;4.25%, or at least you want some of your 401(k) egg earning a steady return in cash rather than exposed to market risk, that's a reason not to pay off the loan.  The effect is to keep that 40,000 in cash, earning 4.25% (from you).  You the home mortgage borrower are breaking about even--4.25% is the going rate these days on a 30 year loan, and since the loan was for a home purchase you get the mortgage deduction--while you the 401(k) investor are getting a steady guaranteed 4.25%, which is better than you can do in bonds or T-bills these days.

Meanwhile, that 40,000 you're realizing from the sale of investment property?  Plow it back into some other investment property.  Rental property is a safe and productive investment, steadier than the market right now IMHO.  (And even if you don't share MHO, it's good diversification.)  
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