I think you will have to check with your plan administrator about this, because some of it depends on the rules of the specific 401(k) plan. The fact that you will be leaving the job also makes a difference. One of the strongest arguments against borrowing from a 401(k) is that if you leave the job, you may be required to repay the entire loan immediately, but if you have already left the job before you borrow, the situation ought to be different.I looked into borrowing from a 403(b) plan, but those have somewhat different rules. In that case, a loan is not subject to penalty or tax, although of course interest is charged. Most of the interest would be credited back to my account, an advantage.On the other hand, interest would have to be paid from the beginning of the loan, in contrast to many student loans that have subsidized interest while you're in school. And the interest on student loans is now tax-deductible (for US residents) during the first five years of repayment.I think that for most people borrowing from a 401(k) is better than withdrawing funds, not only because there's no penalty, but also because you can't replace the funds in the 401(k) after they're withdrawn. I am not sure that borrowing from a 401(k) is better than obtaining a student loan, though.
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