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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75383  
Subject: Re: 401k Borrowing Date: 10/30/2007 7:36 PM
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Yes, you are repaying yourself, but that is *not* the cost of a 401K loan. The interest is like borrowing from your right pocket and paying it back from your left with 5% interest. Its totally irrelevant.

But there *is* a cost to a 401K - a substantial cost. That is, any money you borrow is no longer in your 401K, its no longer in the market, its no longer growing, earning you interest, dividends, or anything else.

If the market goes up 10%, and you had the money out, then it cost you 10% - regardless how high or low the interest rate is. Sure, you may get lucky and pull it out at a good time, but chances are you'll miss 8-10% (tax free) on average, and that's typically a steep loan.

There is basically never a good reason to to take a 401K loan, other than absolute, unforeseeable emergency or something of the sort.
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