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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308369  
Subject: Re: Borrowing from your 401(k) Date: 10/27/2013 12:47 PM
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Don;t you get taxed at like 25% on the monies you borrow?

Not when you borrow - only if you don't pay it back. And since most 401(k)loans require payments to come out of your paycheck, before you can get to the money, as long as you remain working at the job that's associated with the 401(k) plan where you took out the loan, there's very little chance that you won't pay it back.

The problem comes when you leave your job, either voluntarily or involuntarily. And it can actually be a lot worse than 25%. Many plans require that you pay back the balance of the loan within a short period of time (often 30, 60 or 90 days) after leaving employment, or the remaining balance on the loan will become a distribution, and will be taxed at your marginal rate, plus a 10% penalty if you are younger than 59 1/2, for the federal taxes. At current federal rates, that could be up to 39.6% for your marginal rate, plus 10% in penalty. Then if your state has income taxes and penalties, you would also get hit with another, say 10% in taxes and penalties. So all in, you could be taxed close to 60% of the distribution amount.

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