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Subject:  Reinvesting 401k Loans Date:  7/30/2010  10:40 AM
Author:  CUInHawaii Number:  67382 of 88538

Does anyone know if the interest you pay on a 401k loan counts towards your annual contribution limit? I can't seem to find any information online about this.

Let's say that a person is already contributing the maximum to both a 401k and an IRA. Could they contribute more by taking out a 401k loan and thus be paying interest on the loan? If so, you could take a $50,000 loan at say 5% from your 401k, then invest the proceeds. The point would be to match your 401k returns using the loan money.

Over a 5 year period this would add over $6000 in interest to your 401k account. If this is in addition to the max contribution AND you have matched your 401k returns with the loan money then you have avoided the major reasons not to take a 401k loan.

This probably doesn't work, but interesting to think about.

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