Reply to Should I take out a HELOC or a TSP loan to finance my $40,000 bathroom renovation?

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Reply to "Should I take out a HELOC or a TSP loan to finance my $40,000 bathroom renovation?"

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]Are you maxing out your retirement accounts?

If you take out a TSP loan, that’s another way to get more money in to the account. The interest doesn’t count towards contribution limits.

My 401k is charging 7.5% on loans. I current have a loan out so I can put in an extra $3800 a year. I’m one year in and will pay this one off next month and do it again. [/quote]

This doesn't sound like a good idea per the article above:

One additional caveat of using a 401(k) loan to pay yourself interest is that even though it’s “interest” and is being “contributed” into the 401(k) plan, it isn’t deductible as interest, nor is it deductible as a contribution. Even though once inside the plan, it will be taxed again when it is ultimately distributed in the future.

Of course, the reality is that any money that gets invested will ultimately be taxed when it grows. But in the case of 401(k) loan interest paid to yourself, not only will the future growth of those loan payments be taxed, but the loan payments themselves will be taxed in the future as well… even though those dollar amounts would have been principal if simply held outside the 401(k) plan and invested.[/quote]

OP, pay attention to this post.

I have taken out 401k loans multiple times, including for a bathroom renovation. There are certainly some benefits.

The biggest drawback is that you are double taxed on the interest you pay yourself, as it is paid in after tax dollars and then taxed again as income when withdrawn.  This is not the case with principal, though.

The best option is a Roth 401k loan.

You really have to run the numbers. For me, the origination fee was only $75, and I paid back the loan in 12 months (it bridged the time between 2 annual bonuses). [/quote]

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