Message Font: Serif | Sans-Serif
No. of Recommendations: 0

You wrote, I don't know how to explain this clearly but I'll try. If you withdraw $10K in pre-tax $$, you will need to earn $10K +15% to replace it with after-tax dollars. I may be wrong (and I hope someone more knowledgable will correct me), but it seems to me that you take a 15% loss on your money just by withdrawing it.

It's just your interest payments that come from after-tax dollars.

In the simplest example, you would borrow the $10K and put it in a money market account. Over time you would repay the 401(k) from money market; but you would have to pay taxes on the interest you earned. The principal balance would not be taxed since a loan is not income.

Now substitute your favorite investment for the term "money market" and include capital gains with earned interest and you'll see how it applies to any situation.

- Joel
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.