Within the past couple of weeks, the topic of 401k loans has come up repeatedly in my life. One of my former teammates is a mortgage broker and he asked me during a hike if I thought that 401k loans were as evil as he thought they were. I also heard both Dave Ramsey and Suze Orman talk on their shows about the dangers of the 401k loan. Ric Edelman, a high profile contributor for many financial publications, has written about the Top 10 reasons you should never borrow from your 401k plan. Here are a few:
The magic of compounding will be lost. If your investments continue to rise in value, you’ll lose that growth and the compounding on that growth.
Your take-home pay will be reduced. The cash flow coming into your day to day life will be smaller for the duration of the loan.
You will still be in debt. You are essentially swapping one debt for another if you’re using it to pay down credit card or consumer debt.
I agree with all of these potential downsides of the 401k loan, and there are many more. But in fairness, I wanted to consider the opposite point of view. Could a 401k loan be a good thing from an investment standpoint?
401K.TAX 