Hello:My 401K has very few good options for investing. I was thinking of taking a loan from my 401K of $12000.00 and investing in a Roth IRA. Depositing $6000.00 for 2011 and $6000.00 for 2012 (I am over 50 y/o). The interest for the loan would be 4% which will go into my own 401k account. The $12000.00 could be invested in better choices. What do you think are the advantages and/or disadvantages of doing this?Thanks,
That is a reasonable strategy assuming you can earn better returns in your Roth IRA.Keep in mind that 401K loans are callable. Usually that happens if you change jobs or sometimes if the employer changes the 401K custodian. If the loan is called and your Roth investments are down in value, you could have to repay the loan from other sources or it will be treated as a distribution and assessed penalties in addition to income taxes.The idea is more attractive if you know your job is secure, but you might need to be conservative with your Roth investments at least until you have gains beyond the loan amount.
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