(NA) loan against 401k ?

Here's why I think it might be a bad idea:
  • If you quit or are laid off or fired, it is due immediately or else it's considered a distribution.
  • Depending on the market returns, you're missing out on better appreciation in the market.
  • It could be a gateway drug to taking a distribution (once you have that loan sitting there, it might be tempting to just take a distribution to be debt free)
  • As mentioned earlier, interest is not tax deductible, so it can be a somewhat expensive way to finance.
Better just to save up. Besides, once the monkey arrives, you'll have another earner in the household.
 
I don't think anyone has mentioned that if you do the 401k loan, you forego the interest that money would have earned had you left it in the account, which rolls over into the balance and earns more interest.
 
eman1200 said:
so aside from the difference in opinion about the tax portion, this is more what I was looking for, although you don't really state why. if you consider it a hardship loan, why do you? that's what I was looking for, why is it a good or bad idea to do. keep in mind, I wouldn't be taking money out of my 401k, which would come with severe penalties of, oh, I don't remember, 25% penalty or something stupid like that. but it sounds like you already know that.
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If you are under age 59-1/2, there is a 10% penalty added to your tax, so you could be close to 45% total tax. My parents always just said 50%
 
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