4knights said:
Depends on who your 401k is with, mine is Thrift Savings Plan (federal employee) and YES, the payment is taken out of my pre tax income since it was originally pretax when deposited. Not like my ROTH- that's post tax deposit.
That's interesting. I thought it was federal law that required your 401k loan to be paid back after tax. That's how mine works.
4knights said:
I know, I know, there is a cost to me long term- not paying into the 401k at the same rate preloan will decrease my account amount long term but not as much as traditional interest rates would have cost me.
Actually, most "professional" accountants will tell you that the bigger downside is the lost potential growth on the money that was loaned out. If you take a loan out for $50k, then that $50k is not in the 401k account to grow. There are formulas that can tell you what your potential money lost is for different 401k return rates vs taking a traditional loan and paying interest to someone else. Just google 401k loans and there are websites that will do this for you. (For example, if your 401k grows at 12% and you are paying someone else 6% interest, it still might be better to pay someone else 6% interest and let your money grow at 12%.)
However, this can work in reverse and be in your favor if your 401k decreases in value while you are paying back the loan. You would be buying back your 401k "shares" at a lower cost (and with your own interest) than you "sold" them at to take out the loan. In other words, your interest paid back is growing your 401k account quicker than the market is. (For example, if your 401k only grows at 1% or even loses value you would be better of doing a 401k loan than giving someone else 6% interest.)
I am not saying that a 401k loan is bad (I did one), just that you want to take everything into account so you know the impact to your retirement savings by taking out the loan.
In our case, I was willing to give up potential gain on that money so I could build a pool now. I am basically borrowing against my future retirement. At the rate I contribute and that my company matches, I should be more than comfortable at retirement, even losing $10k-$20k on potential growth on the money that was loaned out.