Loans from Roth 401k

[austin3515]

I think there is a school of thought that says it is very bad to take a loan from Roth accounts. Can someone point me to an article that explains this, or please enlighten me on the logic?

I have a client whose prior provider said it was a fiduciary violation to allow for Roth loans.

[Belgarath]

I think calling it a "fiduciary violation" is ridiculous.

Seems like there are a lot of different opinions on the wisdom of loans from a 401(k) plan, regardless of roth or non-roth.

Just spitballing - it does seem like since the big advantage of Roth (vs. the current tax reduction for pre-tax) is the accumulation of potentially tax-free earnings. I suppose one could argue that by taking the loan, you are potentially reducing the earnings in your Roth account, thereby negating some of that advantage. (of course, if the market tanks during the 5-year period you are repaying the loan, then you have actually increased your potential earnings substantially, if you have a longer timeline)

But investment theory/results is out of my bailiwick. Buy stock in the Brooklyn Bridge!!

[K2retire]

I've heard concerns about how to treat a potential loan default if the loan included Roth. I suspect that the difficulty in tracking that detail is why record keepers don't want to do it.

[austin3515]

Ahh, I bet that's it. You're saying he recordkeeper is going to treat 100% of the loan as taxable? I buy that for sure, especially considering the recordkeeper in this situation. They're good, don't get me wrong, but it's not Empower-grade technology.