Is this legal? 401k loan question...

[Hunter Adams]

Maybe this is a dumb question, but is it legal to borrow money from my 401k (tax free) with a low interest rate, then use that money to loan out as hard money for a higher percentage? It seems like it might produce a better return than the market a lot of times, plus the money gets repaid back into my 401k and the "interest" on the initial loan goes back into my 401k as well.

Thanks, fam.

[Account Closed]

@Hunter Adams  A loan can be a great source of capital when needed, but you must be careful.  I will mention that the stats show more often than not, when individuals take out loans, they do not get repaid or they stop contributing to their plan.  This will hurt their retirement savings growth and projections significantly.

If you leave the job or are forced out (which many times people don't see coming) you may have to pay back that loan sooner than expected.  If it's not paid back, it will be considered a taxable distribution plus a 10% penalty.  This could be an issue if your money is tied up in a hard money loan or something similar.  Say you make the loan but are locked in for a period of time prior to being able to access or remove your investment and are now forced to pay back the loan.  Now you're hit with a big tax bill that you may not have the liquid funds to cover.  Just something to keep in mind!