I agree. Last year we decided to finally replace our aging HVAC systems and take care of some other long overdue home maintenance. We could have paid for it out of our taxable brokerage account, but instead I took the maximum 401k loan and put the leftover amount into my taxable account.
We decided to go with the loan because the investment options in my 401k suck, so I would rather reduce that balance. If I leave my job, I can pay the loan from my taxable account, then roll it over to my IRA, and still get the benefit of better investment options. The only “cost” is the 5% interest that I’m paying to myself.
For others, be careful because many employer sponsored plans don’t allow new contributions to the 401k while there’s a loan. You don’t want to lose that tax advantage space.
But if your plan allows contributions while repaying the loan, I think it’s a reasonable option.
I agree. Last year we decided to finally replace our aging HVAC systems and take care of some other long overdue home maintenance. We could have paid for it out of our taxable brokerage account, but instead I took the maximum 401k loan and put the leftover amount into my taxable account.
We decided to go with the loan because the investment options in my 401k suck, so I would rather reduce that balance. If I leave my job, I can pay the loan from my taxable account, then roll it over to my IRA, and still get the benefit of better investment options. The only “cost” is the 5% interest that I’m paying to myself.
For others, be careful because many employer sponsored plans don’t allow new contributions to the 401k while there’s a loan. You don’t want to lose that tax advantage space.
But if your plan allows contributions while repaying the loan, I think it’s a reasonable option.