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I will be eligible for a 401(k) (actually the Fed Govt Thrift Savings Plan newly opened to military) for the first time in 2002. The first year we are limited to 7% of basic pay, plus any bonuses we recieve subject to the yearly limit of $11,000. I could only contribute about $3600 under the 7% rule, but it looks like I'll get a $10,000 bonus in 2002. I plan on buying a house next year so the money will come in handy.

My questions is this: Would it make any sense to put the maximum of $11,000 into the 401(k) and then immediately take a loan out for what I need (shouldn't be all of it)? Or should I just pay the taxes on what I need to buy the house? The $10,000 won't change my AGI for tax purposes.

I'm having trouble getting my arms around the financial comparison, and I'm a little fuzzy on the rules (I know the TSP follows basic 401(k) rules though.) Primarily, would I have to pay the loan back with after tax dollars? And if so, would I be taxed on that again when I withdraw the money (in 30 years or so?)

Any help would be appreciated.

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