Quote:
Originally Posted by humandraydel
Don't forget: the $1,000 401k loan was TAX FREE money. As we all know, the government doesn't like giving you tax free money! So you have to pay the tax on it, you just do it when repaying the loan. It works out exactly the same as if you had just grossed $1,350 to net $1,000.
Now, to make things even more confusing: the INTEREST that you pay yourself IS taxed twice. This is because you "pay yourself" interest with after tax dollars. And the interest will be taxed when you withdraw it in retirement - but at least it got 20+ years of tax deferred growth!
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I see what you're saying. I was trying to explain something different. I was trying to say that taking a loan from your 401k period would result in double taxation. However, as you pointed out, if you were to take the loan elsewhere instead you'd still be paying it back with post-tax dollars. My scenario was kind of a either you take a loan from your 401k or you don't take a loan from anywhere at all. I'm sure that doesn't make sense but it's getting late.