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|Subject: Re: Roth conversion complicated by other factors||Date: 2/24/2001 5:23 PM|
|Author: TMFPixy||Number: 28096 of 77870|
You also forgot to take into account the "penalty" on the 403b. When you take the loan and pay it back, you are using after-tax dollars to put the money back in. Once you retire and withdraw this money, you will once again pay taxes on the money you put back in. So you are going to be paying taxes twice on monies used to convert the IRA.
It's not double taxation. You do NOT pay income tax when you borrow pre-tax money from a tax deferred account. Your loan payments are not contributions, you are simply replacing these not-yet-taxed dollars. When you retire, you must then pay taxes on these dollars when you make withdrawals, but these dollars, and their earnings will be taxed only once.
It all depends on how you look at it. And the way I view it, your answer is totally incorrect.
The "interest" you pay yourself on the loan is paid with after-tax or already taxed dollars. That "interest" is considered earnings in the plan. When withdrawals start, that "interest" will be taxed again. And that's simply another reason not to borrow from 401k or 403b or 457 or any other type of deferred compensation plan.
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