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

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[quote=Anonymous][quote=Anonymous]Another thing to consider, your original 401(k) contribution goes in pre-tax but any loan repayments are made after tax and then taxed again when you take the money out at retirement.  So essentially that pot of money that constitutes the loan is taxed twice.  That coupled with the fact that you are earning nothing while that money is not invested should make 401(k) loans a last resort.[/quote]

Well, it's not that simple...  you get money just like a normal loan that comes with no tax implications, and then you pay it back... simple as that, just like a normal loan, think of the 401k account more as the collateral...   any other loan/money is treated post tax and you would pay back with post tax money, so it's no different...    now, what's not so simple or the catch/rub is that the interest you pay is now invested in the account  and thus would get taxed twice, since it's new post tax money invested into a pre-tax account... but remember, if you did a normal loan, you'd never get a dime of that interest money anyways, so would you rather get taxed twice on it or just give the interest to the bank??

Honestly though, I would never do this type of loan unless you're doing something like a bridge loan that's very short term in nature, which then minimizes the risk of repayment of job loss and the relative loss of earned interest in the account.[/quote]

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