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What difference does it make if I am "loaning" money to a company in the form of a bond or loaning money to myself.

The difference is who's paying the interest. When the money stays invested in the 401(k), it's earning and the bond issuer is paying the interest and growing your account. When you're repaying the loan, you are the one providing the earnings. In effect, what you're doing is making an additional after-tax contribution to your 401(k), and you'll pay tax on it again when you take your retirement disbursements.

I think you'd be better off in the long run if you financed your car purchase outside the 401(k).

Phil Marti
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