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Financial Planning / Foolish 401(k)s


Subject:  Re: 401K Loan to Fund Roth? Date:  3/9/2000  3:03 PM
Author:  jenniebez Number:  6904 of 26179

I don't think this is a good idea. Do you think you'd make better enough returns on your investments through the IRA to replace 1.) the interest money you'll be paying on the loan and 2.) the employer matching, if you get any? Say you borrow at even the low rate of 7%, and your employer matches 50% of the first 4% of your contributions: you would have to get around 9% MORE return than what you're getting now in order to break even. If you are getting about 9% return in your 401K, that means you'd have to get 18% in the IRA.

Also, if you leave your job for any reason before you pay back the 401K, you have to pay another 10% for early withdrawl.

Why not just leave the money in the 401K that you have there now, but reduce your future contributions? Keep contributing enough to get all the employer matching (i.e. free money) you can, and then put the rest of the money to the Roth.

Or, if you think there may be a possiblity of leaving your job soon, you could move it into a roll-over IRA then, instead of rolling over to a new employer's 401K.
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