Gjac wrote:
Ideally you want to finance appreciating assets like a house or property and pay cash for depreciating assents like a car or RV. But another way to do this if you can't pass up a good deal and don't have the money is to borrow the money from your 401k. I just learned that you can borrow up to $50K from your 401k at 10% interest for 5 years. This is your money so you would be paying yourself back with interest and it would be a way to put more money into your 401k. Not sure how many people know this as it would be better than paying interest to the bank.
Problem with that plan is if you leave your job, or your job leaves you, you often must pay back the 401K loan. If you don't have the funds to do so, your loan will be treated as a withdrawal, subject to income taxation and the 10% early withdrawal penalty. Plus, the amount that you borrow will not be invested in any of the 401 investments, leaving your actual return the 10% interest, less the rate of return of the remaining investment portfolio. In years like last year, where the market advanced more than 10%, you likely would have lost money compared to those who didn't have the 401K loan.
