mbrogers

I didn’t say there is any increase in tax but that you pay taxes twice. And I’ve made that extremely clear. Whatever you put in a 401K isn’t taxed and lowers your taxable income. Your 401K monthly loan payments aren’t paid with pre tax money therefore the money used to make those payments is taxed because it’s treated as income. So if the 401K loan payments are paid with after tax money then at retirement it’s taxed a second time. If the loan payments came out pretax as contributions do then 1) your taxable income would remain the same and 2) you would only pay tax when you retired (once) $10,000 monthly salary - $200 401K loan payment pretax = $9800 (taxable income) - $2940 / 30 percent tax = $6860 versus $10,000 monthly salary (taxable income) - $3000 / 30 percent tax = $7000 - $200 401K loan payment = $6800 The proceeds of the LOAN are irrelevant as it’s a loan not a withdrawal thus you should NOT be paying a loan back with taxed money yet are with a 401K loan.

Actually that would be you that is ignoring what I originally posted which is you didn’t get ANYTHING TAX FREE! The $10K is (drum roll) A LOAN! Therefore you are paying $10K back using your TAXED INCOME! So the $10K you keep stating is tax free is most certainly not tax free. If you make $10K a month and are allocating $800 PRE-TAX towards your 401K then you are only taxed on $9200. If you make $10K a month and pay back that 401k loan then you are paying that loan with all 10K taxed first! If after 3 years of depositing 800 pretax dollars into your 401K you have $24K and you borrow $12K then the money you use to pay back that $12K is coming from your TAXED INCOME! So that money has already been taxed that is used to pay back the 401K loan. Then at retirement it is taxed a second time! You keep making the mistake of treating the loan as non taxed event when in reality the monies you are using every time you make a payment are taxed monies not pretaxed! It would be different if when you are paying back that loan it was put into a Roth so that you weren’t paying taxes twice. The money you allocate to a 401k (unless a Roth) isn’t TAXED aka lowers your taxable income! But you pay back the 401K loan with already taxed money (income).

What part of you are paying back the loan with taxed income doesn’t register lol?? If I make $10K a month then I’m taxed on that $10K. If then I pay back a 401k loan AFTER I’ve be taxed on said $10K then I have paid back the loan with TAXED income. Yet when I go to withdraw that $10K that I paid off over the loan term from my retirement then I will pay taxes on that money a second time. If anyone is mathematically challenged then it wouldn’t be me lol.

Nope! it’s very simple but for some reason this whole thread is dedicated to making something so easy to understand so complex lol. What everyone is failing to understand and realize is that you aren’t simply getting $10,000 tax free!!!! It’s a loan! You are paying this loan BACK! And you are paying this loan back with TAXED INCOME! So if you borrow $10K pretaxed dollars and then pay it back whether over 1 week or 3 years with TAXED INCOME then you have paid taxes on that $10K loan. And at retirement, when you go to withdraw that same $10K you paid back with TAXED INCOME, you will pay taxes again! Therefore you pay taxes twice! It’s maddening how people don’t get this.

The Advisor Insight When you borrow money from your 401(k) plan there are no immediate taxes involved. However, when you pay off your loan, unlike 401(k) contributions which are made pre-tax, the loan payments are after-tax. As soon as your loan payments hit your 401(k) plan they become pre-tax money and, therefore, when you take it out later in life (retirement) you will be taxed on that amount again. For example, you take out $10,000 as a loan, then start to pay it back into the plan with after-tax money. When you retire and withdraw that $10,000, it will be taxed again so the same pool of money is actually double taxed. Michael Mezheritskiy Milestone Asset Management Group LLC Avon, CT