• Posted by C. Anderson
    Tuesday, October 17 2017 at 9:07 PM
    I agree with other commenters that the cost of the 401k loan should really be compared to the cost of borrowing elsewhere. In addition, when people are maxed out on contributions this is a way to shift more income into a retirement plan.
  • Posted by J. Ashendorf
    Tuesday, October 17 2017 at 3:02 PM
    No, a primary residence loan would not be deductible unless the loan were secured by a mortgage on the house. That's possible, but I've yet to see a 401(k) plan that is actually in the mortgage loan business. A loan secured by a pledge of the account balance, even if used to purchase a home, is not deductible mortgage indebtedness.
  • Posted by J.R. Robinson
    Tuesday, October 17 2017 at 12:54 PM
    While I understand that a primary point of this piece is to dispel the notion that borrowing from a 401(k) is not a means of enhancing 401(k) returns, a better way to evaluate the merits of 401(k) borrowing is to compare 401(k) borrowing costs relative to other options, such as a HELOC, installment loan, or low interest credit card alternatives. A 401(k) loan is sometimes an important first step toward getting ahead of high interest debt.
  • Posted by Sea
    Tuesday, October 17 2017 at 12:25 PM
    I think where the 401k loan makes sense is for a person looking to knock out some other high interest debt - credit card or boat loan or something. So now instead of paying 9-20% interest to somebody else, you borrow from yourself and pay yourself and get your finances in order. Bonus if the market tanks while you're paying yourself back.
  • Posted by Snipe
    Monday, October 16 2017 at 7:03 PM
    For many people borrowing money should not be undertaken without consulting with a financial advisor or loan officer. But for most of those that gravitate to a 401K loan it is an option of last resort. There is no advise or lender to say no to the ability to repay or the purpose. This is moral hazard where the law allows something to happen that is not in the best interest of the investor. At our company we do not allow plan loans.
  • Posted by Vangeli
    Monday, October 16 2017 at 4:49 PM
    I'm not as negative on 401k loans. Sure beats premature distributions, or high mtb's. I'm not a tax guy, but I think loans for principal residence would in fact be deductible. To be realistic, the analysis should compare "borrowing from yourself" vs. from a bank, loan shark, your cousin,... And of course you need to know the rules up front (continuation of repay schedule if sep-from-svc, etc.) In a dynamic tax circumstance I can even make a case for a short-term loan to make 401k/IRA contribs.