One of the often quoted “nice things” about a 401(k) is the fact that you can borrow from your 401(k) up to $50,000 or 50% of it’s current assets. What’s nice about that is the fact that while you do pay interest, you’re paying it to yourself so it is in effect an interest free loan, right?
Wrong! What you are borrowing are pre-tax dollars that you contributed through a deduction from your paycheck but what you are paying back with are post-tax dollars plus interest. This money will be taxed once again when you start taking disbursements from your 401(k) during retirement… so the dollars you are paying yourself back with will be taxed twice.
Don’t ever ever ever borrow from your 401(k).