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<p>[QUOTE=&quot;NorthKorea, post: 2756826, member: 29643&quot;]There&#039;s one thing that pretty much no one considers when it comes to 401k loans...</p><p><br /></p><p>They&#039;re repaid with after-tax dollars on a pre-tax basis.</p><p><br /></p><p>Let&#039;s say you borrow $10k from your 401k and earn at a 25% federal tax rate.</p><p><br /></p><p>Your $10k loan is charged interest at 10%. Your payments would be approximately $318 per month for the duration of the loan. Your total outlay would be $11,448 of after-tax dollars to cover an initial loan of $10,000.</p><p><br /></p><p>Yes, your interest payments go to you, but the tax dollars go to Uncle Sam. You would have to earn $15,264 (pre-tax) to pay $11,448 (post-tax) against a $10,000 (pre-tax) loan.</p><p><br /></p><p>Had you, instead, opted to take an early distribution from your 401k, you would have to withdraw $15,384.62 for that equivalent $10,000. No one would ever consider an early withdrawal from their 401k, except in the most dire of situations, yet a loan from one&#039;s 401k... is basically the same thing, when you crunch the numbers.</p><p><br /></p><p>I&#039;m no longer a financial advisor, and nothing in this post (or any of my other posts) should be construed to be financial advice. I&#039;m merely creating a scenario to better explain some of the potential consequences of financial options.[/QUOTE]</p><p><br /></p>

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