Comments on: 401K Loan Rules – Taxes, Interest, Pros and Cons http://www.darwinsfinance.com/401k-loan-rules-tax/ Financial Evolution: Education, Adaptation, Achievement Mon, 06 Feb 2012 15:43:23 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: spunkygalhttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-8439 spunkygal Sat, 30 Apr 2011 01:05:43 +0000 http://www.darwinsfinance.com/?p=1943#comment-8439 No No No... Not getting a deduction on the loan payment is NOT the same as "double taxation." This is why Suze Orman's comments are so ridiculous. You already got a deduction on the funds when you put them in the 401k the first time. You think the IRS should let you take the funds out --without paying tax-- and then give you a *second* deduction when you put them back in? That makes absolutely no sense. NO ONE would leave money in a 401k if that were the case. +deductible contribution -tax free loan +after tax payback -taxable retirement withdrawal = ONE DEDUCTION & ONE TAXABLE WITHDRAWAL +deductible contribution -tax free loan +deductible payback -taxable retirement withdrawal = TWO DEDUCTIONS & ONE TAXABLE WITHDRAWAL The interest on the loan is the only thing you are taxed twice on. As a few have demonstrated here, it's a mild deterent to these loans. They're still so popular that many 401k custodians only allow hardship loans under more strict criteria. No No No…
Not getting a deduction on the loan payment is NOT the same as “double taxation.” This is why Suze Orman’s comments are so ridiculous. You already got a deduction on the funds when you put them in the 401k the first time. You think the IRS should let you take the funds out –without paying tax– and then give you a *second* deduction when you put them back in? That makes absolutely no sense. NO ONE would leave money in a 401k if that were the case.

+deductible contribution -tax free loan +after tax payback -taxable retirement withdrawal = ONE DEDUCTION & ONE TAXABLE WITHDRAWAL

+deductible contribution -tax free loan +deductible payback -taxable retirement withdrawal = TWO DEDUCTIONS & ONE TAXABLE WITHDRAWAL

The interest on the loan is the only thing you are taxed twice on. As a few have demonstrated here, it’s a mild deterent to these loans. They’re still so popular that many 401k custodians only allow hardship loans under more strict criteria.

]]> By: billyhttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-8187 billy Tue, 01 Mar 2011 01:51:42 +0000 http://www.darwinsfinance.com/?p=1943#comment-8187 At my company I have to pay my 401k loan back with after tax part of my paycheck so i will have to pay tax on that protion when I withdraw it at retirement. So it is double tax on this loan. At my company I have to pay my 401k loan back with after tax part of my paycheck so i will have to pay tax on that protion when I withdraw it at retirement. So it is double tax on this loan.

]]> By: 401(k) Hardship Withdrawals Spike – Rules and Alternativeshttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-6666 401(k) Hardship Withdrawals Spike – Rules and Alternatives Sat, 21 Aug 2010 01:45:01 +0000 http://www.darwinsfinance.com/?p=1943#comment-6666 [...] balance, as I highlighted over at Darwin’s Finance, I would actually recommend taking out a 401(k) Loan rather than a flat out withdrawal.  As opposed to paying a 10% tax to the government upon [...] [...] balance, as I highlighted over at Darwin’s Finance, I would actually recommend taking out a 401(k) Loan rather than a flat out withdrawal.  As opposed to paying a 10% tax to the government upon [...]

]]> By: Best Financial Planning and Investment Articles this Week | Personal Investment Management and Financial Planning Blog Directoryhttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-4897 Best Financial Planning and Investment Articles this Week | Personal Investment Management and Financial Planning Blog Directory Fri, 19 Mar 2010 06:33:31 +0000 http://www.darwinsfinance.com/?p=1943#comment-4897 [...] presents 401K Loan Rules – Taxes, Interest, Pros and Cons posted at Darwin’s Finance, saying, “401K Loans are misunderstood and misused. This [...] [...] presents 401K Loan Rules – Taxes, Interest, Pros and Cons posted at Darwin’s Finance, saying, “401K Loans are misunderstood and misused. This [...]

]]> By: The Carnival of Money Stories XLV - The Sex, Lies and Videotape Editionhttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-4845 The Carnival of Money Stories XLV - The Sex, Lies and Videotape Edition Mon, 15 Mar 2010 13:19:11 +0000 http://www.darwinsfinance.com/?p=1943#comment-4845 [...] presents 401K Loan Rules – Taxes, Interest, Pros and Cons posted at Darwin’s [...] [...] presents 401K Loan Rules – Taxes, Interest, Pros and Cons posted at Darwin’s [...]

]]> By: Evolution Of Wealthhttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-4826 Evolution Of Wealth Fri, 12 Mar 2010 20:57:45 +0000 http://www.darwinsfinance.com/?p=1943#comment-4826 Jim has it right when talking about 'double taxation'. If you put it in perspective and compare it to any other loan option you might have you pay the money back with after-tax dollars and you pay the interest with after-tax dollars. So it's the same as any other loan. I sort of agree with how you said it except that the full payment on the 401k loan is with after-tax dollars and not just the interest. But again, if you put it in perspective it's the same. The big thing that I would add is that if you take a 401k loan most 401k not only stop you from contributing but have stipulations that you might not be able to contribute for up to 6 months or a year after the loan has been paid back. This could really make those opportunity costs start adding up. Jim has it right when talking about ‘double taxation’. If you put it in perspective and compare it to any other loan option you might have you pay the money back with after-tax dollars and you pay the interest with after-tax dollars. So it’s the same as any other loan.
I sort of agree with how you said it except that the full payment on the 401k loan is with after-tax dollars and not just the interest. But again, if you put it in perspective it’s the same.

The big thing that I would add is that if you take a 401k loan most 401k not only stop you from contributing but have stipulations that you might not be able to contribute for up to 6 months or a year after the loan has been paid back. This could really make those opportunity costs start adding up.

]]> By: Kathttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-4803 Kat Thu, 11 Mar 2010 19:34:53 +0000 http://www.darwinsfinance.com/?p=1943#comment-4803 Thanks for a great explanation. I was just investigating and this is the clearest description I have found of exactly what happens when you repay the loan. Thanks for a great explanation. I was just investigating and this is the clearest description I have found of exactly what happens when you repay the loan.

]]> By: Money Hacks Carnival: Middle Name Pride Day Edition | Mighty Bargain Hunterhttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-4762 Money Hacks Carnival: Middle Name Pride Day Edition | Mighty Bargain Hunter Wed, 10 Mar 2010 11:14:58 +0000 http://www.darwinsfinance.com/?p=1943#comment-4762 [...] Finance runs down 401(k) loan rules and discusses the pros and [...] [...] Finance runs down 401(k) loan rules and discusses the pros and [...]

]]> By: Kenhttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-4642 Ken Sat, 06 Mar 2010 01:40:43 +0000 http://www.darwinsfinance.com/?p=1943#comment-4642 Let's not forget that if you are terminated from your job a 401K loan repayment in full can be required. Let’s not forget that if you are terminated from your job a 401K loan repayment in full can be required.

]]> By: jimhttp://www.darwinsfinance.com/401k-loan-rules-tax/#comment-4640 jim Fri, 05 Mar 2010 23:43:35 +0000 http://www.darwinsfinance.com/?p=1943#comment-4640 The "double tax" argument against 401k loans really annoys me. The way I've heard Suze Orman make that argument is that its "double" taxed because you pay the loan off with after tax funds and then you pay taxes on the withdrawals from the 401k at retirement. It makes no sense to me to look at it that way. You pay any loan off with after tax funds so its no extra taxation compared to any other loan repayment. The “double tax” argument against 401k loans really annoys me. The way I’ve heard Suze Orman make that argument is that its “double” taxed because you pay the loan off with after tax funds and then you pay taxes on the withdrawals from the 401k at retirement. It makes no sense to me to look at it that way. You pay any loan off with after tax funds so its no extra taxation compared to any other loan repayment.

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