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Somehow that doesn't seem right. Maybe I am missing something, or not thinking about it in the right way?

It's not quite as bad as you think. Bad, though, just not quite that bad. If you *accurately* track the money flow you'll see that you don't quite get taxed twice.

But, yeah, taking a loan out of a 401K is expensive. You'd almost think that Congress wanted people to use their 401K strictly for retirement and therefore penalized other uses for a 401k. ;-)

Hopefully you won't discover the REALLY bad thing about 401k loans. If you leave your job -- quit or get laid off -- you generally have 30 days to pay off the entire loan balance, or it will be considered an early withdrawal and you'll get hit with income tax and hefty penalty.
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