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URL:  http://boards.fool.com/borrow-from-401k-for-roth-10418142.aspx

Subject:  Borrow from 401K for Roth Date:  11/16/1998  8:31 PM
Author:  Duke84 Number:  6631 of 76418

Here is something I'm currently considering. Any comments or suggestions??

I'm currently maxing out my 401K and am on a pace to do so again this year. I'm trying to save to invest in a Roth IRA as well. The 401K and paying down debt has kept me from setting aside $4000. The debt is now
gone!! :) I can probably get to $2000 by Dec 31st. What I'm thinking over is borrowing an additional $2000 from my 401K to put in the Roth to get to the maximum $4000. I think that after matching amounts in a 401K, the Roth is a better long term investment than unmatched 401K contributions since the Roth is tax free while the 401K is tax deferred. I also always hear to never borrow from the 401K. I fully agree to pay for other spending but this is for further investment.

Here is all I can think of right now:

Pros:
Maximum amount invested in a Roth.
More control of the funds. (401K limited to 8 mutual funds and company stock. Most in a 500 index fund.)
Tax free growth

Cons:
Lower cash flow next year as the loan is paid off
Opportunity cost of 401K growth. (Should be cancelled by Roth growth)
401K loan is repaid with interest (9.25%)
Loan is due immediately if I quit my company. (Don't plan to)

Are there other pros and cons that I haven't considered yet? It seems almost like investing on margin.


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