I know that 403b loans are controversial (and usually viewed as bad choices). But I ended up taking one in 2022 but am about to get an 18% raise and am exploring how to model whether or not to pay it back early.
As a starting point the payment plan has another four years to go. My monthly cashflow is enough that the payment amount is not a concern while I have my job and it is on auto-repay from my bank account. And I have more than the existing loan amount in a 457 so if I lost my job I could immediately repay it if needed. Having the existing loan does not impact my ability to make additional regular contributions to the plan.
I知 trying to get a good handle on what the loan is costing me. There is an administrative fee of $25/yr which is the obvious cost. But I think there痴 a small additional cost as well.
I know there are arguments a lot about double taxation on the distribution on loan but that is mostly not true. The pretax contributions are just withdrawn tax free with the loan and then the post tax repayment then gets taxed when I take it in retirement. So the transactions are paired up tax free/taxed. But I think the one caveat to that would be that the interest I知 paying to myself on the loan is with post-tax money and will be taxed when I retire, so that part is being taxed-twice. Would it sound fair to include the cost of the loan as my marginal (last dollar) tax rate on the interest charge each month?
The alternative to repaying it early that I知 mulling over is to stick the amount in a regular brokerage account instead. The investment would be substantially identical so the performance would be the same. My plan is to keep my taxable income low enough that I値l be in the 0% capital gains for the next several years so I could potentially harvest the gains from year to year. Therefore, it seems like there could be a potential benefit to delaying paying back the loan as it will ultimately lead to less money in the 403b account taxed at regular income down the road. My current projection is my retirement marginal tax rate would be in the 12% or 22% bracket.
I know that the knee-jerk reaction is the 403b loans are always bad and that others would feel like I知 making things more complicated. But I guess I知 asking if my decision-making process is at least reasonable, even if it痴 not the option you would choose?
