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

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]Another thing - the money you first put into the 401k is before-tax money.   You have to re-pay the loan with after-tax money.   That's a big hit, depending on your income tax rate.  [/quote]

A very good point.  So for every 10,000 you loan yourself, you have to repay somewhere in the ballpark of $12,500.  And that's before any interest charged.  Not a good deal.  [/quote]

I don't really understand what you are trying to say.  I don't have to pay income tax on the amount I borrow from my 401k, so why does it matter if the amounts in there were pre-tax or not, as long as I repay whatever I borrow.  [/quote]

My statement wasn't really clear - it should read, for every $10,000 you put in, you have to effectively use $12,500 (depending on your tax rate) to pay it back.

Say you put $10,000, pre tax, into your account, and then borrow it.  (For purposes of this example, ignore investment gains or interest.)  You do not repay it with pre-tax dollars - you pay tax on your income, and THEN use that income to repay the loan.  So say you pay it back all at once, a lump sum of $10,000 - your account is exactly where it was when you started, with $10,000 in it.  But instead of paying $10,000 pre-tax into the account, you have paid $10,000 post-tax, so you have to add the tax you paid on the loan repayment as a sunk costs of funding the 401k.  I guessed that is about 25%, all in, but it may be more or less.

[/quote]

you all are crazy with this double taxation nonsense, and as a pp already said earlier in this thread, only your interest is double taxed (which is kind of mute when looking at the real costs of taking out one of these loans).... seriously people, at least google something and become a little familiar about it before you spew false information...

http://www.vanguardblog.com/2009.07.24/401k-loans-are-you-really-taxed-twice.html[/quote]

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