No. of Recommendations: 10
MetroChick:

<<<Net/net, there is no difference in the income taxes the OP would pay this year whether or not they take out the 401(k) loan. No increase in taxes paid => no double taxation>>>

"I'm not talking about an increase in income tax due to taking money out of a 401K.

The money in my 401K right now is all pre-tax dollars. If I wait until I'm 59 [1/2] to start taking money out of it, I will pay tax on what I withdraw.

If I take a loan out on it today - I have to pay back the loan with dollars that I've already paid taxes on"


which also true of the credit card loans that are being replaced, so no difference or extra tax.

" - so then my 401K becomes a mix of some money that's pre-tax, and some that was to pay back a loan and is therefore post-tax."

It does not establish basis, so I diagree with the post-tax conclusion; it is like ineterst earned on a bond owned by the 401-k.

"And then come 59 [1/2] when I withdraw I get to pay taxes again on those post-tax dollars in my 401K."

You get to pay pay taxes on all the dollars coming out, whether you pay your self interest (from borrowing) or not.

Regards, JAFO
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