The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Borrow from 401K for Roth||Date: 11/17/1998 8:57 AM|
|Author: TMFPixy||Number: 6638 of 78166|
<<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:
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
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.>>
Add to the cons the fact that your repayment comes from after-tax money, so every dollar you repay actually costs you $1.15 to $1.28 depending on your tax bracket. Also, the interest you pay yourself on that loan with those after-tax dollars w