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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75797  
Subject: Re: Simple question about 401k-to-IRA conversion Date: 2/25/2011 11:21 AM
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Well, I wouldn't call interest that you pay to yourself "interest". I'd call it "moving your own money from one pocket to another".

Likewise, when you borrow out $50K of a $100K account, you don't get the returns (gains/losses) on $100K--you get it on 50K. It's not like borrowing 50K using the 100K position as collateral---which is how a real loan would act. A real loan would still have your entire $100K account invested.
The way a 401k loan acts is the same as a withdrawal with the caveat that you must put it back over 5 or 10 years.

However....taking out a 401k loan is overall superior to take a penalty-free withdrawal for a house downpayment. Because if you take a "loan" get to put the money back into the 401k, whereas if you take a withdrawal you are not allowed to put the money back in.

But really, it doesn't matter what you want to call the details. A 401k loan is a bad idea for a lot of reasons. Principally, as AJ, et. al. says because if you leave the employer you have to completely pay in back right away.

"If it's not worth doing, it's not worth doing well."
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