Financial Myths: Your 401k Loan

The financial myth around 401k loans is purely based on emotions and not facts.  Yes, sounds good if you are going to take a loan I hear, "May as well take it from yourself."  Yourself being your 401k.

However, what employees miss is that the money in your 401k is pre-tax money.  When you pay the loan back, you use after tax money.  So you have paid taxes on that money already and will pay taxes again when you withdraw the money in retirement.   

So before you calculate in the potential growth of investments or the downside risk of not being able to pay the loan back, consider simply the tax issue.  A loan is a loan.  But who and where you take it from matters.  

Listen to the numbers not your co-worker.  Even if the new fun car is calling.....