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No. of Recommendations: 3
<<"Two risks:
1. Early withdrawal penalties associated with conversion to a distribution"<?I>

Which only occurs if the loan is not paid. Not certain that it is necessarily worse than having property foreclosed upon/repossessed.

"2. For plans that require immediate payment on separation from employer there is a lack of control over when the loan could be called"

Which, as we both know, is not all plans, so that risk is inherent in only certain 401-k loans, not all 401-k loan.

"Mortgages and consumer loans also have risks but these are risks specifically associated with 401K loans."

I agree that the risks you named, and as the second is qualified, are specifically associated with 401k loan, but that still does not answer why those risks are necessarily worse than the risks associated with mortgage and/or consumer loans.>>


Mortgage and consumer loans DON't have the penalties and disadvantages described above.

I'm amazed that Jafo wasn't able to put 2+2 together here....


I don't see anything in your answer that refutes what JAFO said, or answered the question of why the 401(k) loans risks are worse than the risks associated with mortgages and consumer loans. You seem to be completely ignoring those risks.
- Both have penalties for late payments
- Both can be variable rate loans, which is great when rates are dropping, but can get ugly when rates are increasing
- Consumer loans can have penalty rates
- Mortgages run the risk of foreclosure and losing your home
- Mortgages and consumer loans both have provisions where they can be called at the lender's discretion if terms are violated
- If more than $600 of the debt is written off/forgiven for either mortgages or consumer loans, taxes will be due on the phantom income, compared to the 401(k), since you actually got money at some point, whereas with mortgages and consumer loans, you likely got an illiquid asset that couldn't net the balance of the loan, or the asset would be sold rather than being defaulted on.

The risks for 401(k) loans are not necessarily better or worse than those for mortgages or consumer loans - it depends on each individual's circumstances and risk tolerances.

AJ
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