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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: Borrowing from your 401(k) Date:  8/21/2013  3:28 AM
Author:  aj485 Number:  307219 of 309665

The double taxation on 401K interest payments makes this less desirable.

Double-taxation on interest is a red herring. Taxes are based on income. Taking out the loan has no impact on your taxable income. Paying interest on the loan has no effect on your taxable income. So, you pay no more (or less) in income taxes than if you didn't take out the loan, all else being equal. Similarly, you pay no more or less in taxes is paid in any year you pay interest on the loan.

While technically, you will pay taxes again on the same money at withdrawal, if you would have withdrawn the same amount whether the additional money was in there or not, there is no change to your taxes, so again, no extra taxes are paid. If RMDs force you to take more out of the account since the balance is higher because of the additional money that was put in - you will still end up with more in your pocket than if you ha