{ "media_type": "text", "post_content": "What are the pros and cons of taking a loan from my Roth 401k over a federal loan for business school?", "post_id": "58c6ba694ace8a00102dd44b", "reply_count": 8, "vote_count": 1, "bowl_id": "552d1d24dc1c586b09d2d051", "bowl_name": "Consulting" }

What are the pros and cons of taking a loan from my Roth 401k over a federal loan for business school?

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If you leave company, you have to pay it back in full or face penalty.

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Horrible idea. The problem is you may not understand until you learn finance in b school.

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A1: Oh ok thanks! I guess it's not even an option then.

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Well, looking forward to learning lol thanks M1

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Only borrow from your retirement if it's life or death.

I disagree vehemently...That's why there's a "personal loan" and a "hardship withdrawal" provision and they're different. The loan allows you to pay yourself the interest (prime+) and all you lose out on is a small initiation fee (like $50). Yes, you do lose out on having the money in the market, and if you leave the company and can't pay back the loan you will owe the IRS a 10% penalty if you are under 59 1/2, but otherwise you are good, no hit to your credit (though that could also be viewed negatively if you need to build credit). One of the first things I did with my wife when we sat down and worked out her finances was to pay off her considerable amount of credit card debt by taking out a loan against her retirement...Netting her/us hundreds to thousands per year.

The one other complexity is that the interest you pay to yourself will be double taxed - after tax income goes in, and the money going in will be treated as traditional, not Roth, when it comes out.

That is true on a traditional 401k loan but not Roth. Either way loan repayments go in after tax, withdrawals also come out after tax, there is not a "waiting to be taxed" bucket in a Roth as even earnings are withdrawn tax free (hence the power of a Roth).

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