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Subject:  Re: The downside of 401k loans... Date:  2/11/2015  2:27 PM
Author:  aj485 Number:  309027 of 312956

I'm going to make this argument, but she's not much of a numbers gal when it comes to finances, lol. In her mind, it's $13.8k paid plus $48k, vs a one time $19.3k and walking away. As both you and PSU mentioned, the long term value of that $48k is potentially much greater. I get that. Convincing her to see it that way is my challenge. She's good (great) at many things, but financial matters is not one of them.
And unfortunately, that's part of the problem. It doesn't register fully. The 401(k)'s did well last year. Really well, actually. The sum of our accounts today is actually higher than it was before we took out the loan. But it seems clear to me that the HEL is the way to go...

If you want to avoid talking so much about numbers, another approach you might take is talking about how when you borrowed the money from the 401(k) you, as a couple, made a commitment to pay the money back to the 401(k) through the payroll deductions, just like you might have with a loan from a bank or your CU where you could have automatic payments deducted from your checking account. Now that that you will no longer be able to use payroll deductions to make those payments, you, as a couple, still need to find a way to put the money back into the 401(k). Otherwise, you would be defaulting on the commitment that you made to yourself and your retirement funds. The best way that you see to do that is to pay back the money to the 401(k) by getting a HEL - the payments will be pretty similar to the payroll deductions that have been taken out, and as an added benefit, the interest paid will be tax deductible.

Also, you might want to talk about how the cost for the HELoan is not the $13.8k in interest plus the $48k - you are actually getting $48k from the bank when you take out the HELoan, so the true cost of the HELoan is just the $13.8k in interest (which will be reduced even further by the tax deduction) vs. the 19.3k in tax and penalty.

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