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HenryKringle6000 t1_j2csdve wrote

Reply to comment by nip9 in Personal Loan Against 401k to Contribute More? by [deleted]

You pay taxes twice. Once by paying the loan back in post-tax dollars. And again when you retire and pull the money out of your 401k.

That’s double taxation.

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avalpert t1_j2e64u0 wrote

You are mistaken because you are forgetting that the dollars you got as a loan are treated as post-tax dollars.

Look at it this way, take out a loan for $10k, immediately pay it back with that same $10k - did you convert them into 'double-taxed' dollars, of course not.

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nip9 t1_j2e6rvq wrote

You borrow $10k from your 401k and what exactly do you believe occurs?

$10k is subtracted from your pre-tax dollar 401k balance and $10k in post-tax dollars get deposited in your bank account. Pre-tax dollars have been converted to post-tax dollars without a taxable event occurring (assuming the loan is paid back in full and doesn't become an early distribution).

You repay that loan with an equal $10k amount of post-tax dollars plus interest.

No double taxation on the principal because you received post-tax dollars and repaid post-tax dollars.

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