401k loans are not double taxed, not that they're a good idea, but they're not double taxed
consider you take a loan, and the funds that come out from the loan go in your left pocket, and funds from your paycheck go in your right pocket
you take a $10k loan, your 401k is $10k less, you have $10k in your left pocket. No effect yet on your taxes.
over the course of 6 months you earn $14k, you pay $4k in taxes, $10k remains and that goes in your right pocket
now you repay the loan. $10k goes back into the 401k. You're left with $10k. Which pocket does it come from?
Doesn't matter. But in the end, the loan funds aren't taxed.
OP, from a mustachian POV, your question makes me wonder if you're living above your means. Instead of telling you how to do this, I recommend a thorough examination of what it it is you want to buy that you don't have the money for.
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In the example quoted above, the money in your right pocket was taxed $4k. When you withdraw the money, there is no provision for the fact that taxes were paid on the money that was used to repay the tax free money from the loan.
I've had this conversation with the great
@Cheddar Stacker on this forum before. He's mostly inactive now, but he's a very wise and mustachian CPA. I still don't quite get it. MustacheAndaHalf points this out as well. I get that the loan isn't double taxed, but the money I paid it back with sure as hell was post tax. Had a person not borrowed pre-tax money, they wouldn't need to pay it back with post-tax dollars, hence the conundrum.
More cons:
-The money you've borrowed is out of the market, so you're losing on potential gains.
- Borrowing from a Roth has the same time-out-of-market problem.
- Cashing out a Roth is worse in the long term, because you can't put it back into the Roth.
- 401k loans typically have a short payback preriod should you separate from the company.
Finally, this: I borrowed from my 401k once and consider it the biggest mistake of my financial life. I only borrowed $6k and I used it for a property that doubled in price when I sold it four years later, but damn, I hated feeling like an indentured servant. I paid that fucker off with "gazelle-like intensity" within the year and never tapped it again. In retrospect, I wish I had borrowed it from my parents, but I was too fiercely independent.
In the long run, it didn't and won't hurt me, but I'll never forget that terrible feeling of being trapped in my job for as long as I owed that 401k money.