401K Loan and Employer Matching

[David M.]

Hello BP'ers,

I've been over and over the forums reading the 401K loan threads as much as possible, and see the point people are making when they mention that you are paying it back with post-tax dollars. However, if you have decent amount of employer matched funds that are available, is taking the 401K loan still worse than a hard-money loan?

As an example, if I could take a loan of roughly 25K - if I add up the amount of employer matching and gains over the course of my time in the plan, that adds up to be about 18K of the 25. The employer match is really a 100% return already, so doesn't that sort of offset the double taxation issue enough to be worth it?

[Patsy Waldron]

Personally, I think the talk about paying back with post-tax dollars is pretty silly. ANY loan you take out will be repaid post-tax! It's actually one of the most economical loans you can take out, since you are paying YOURSELF the interest as well as the principal. The only thing to keep in mind when you take a loan from your 401K is that, should you separate from your employer for whatever reason, the loan is due within 60 days, or it will be considered a distribution and be taxed. And also- make sure that you DO pay it back within the allowed timeframe (5 years is common), otherwise it is taxable.