HELOC, 401k Loan??

[Guizmo]

I started grad school again and I'm wondering if it would be smart to get a HELOC or a 401k loan instead of student loans to pay for tuition. Thoughts?

[dogboyslim]

if you leave the job, its very possible that the 401k loan becomes due, and if not paid back becomes a disbursement subject to the 10% penalty.  I'm not a fan of that, so if borrowing is necessary I'd lean more toward the student loans or a HELOC.  I know others may disagree, but that's my $.02

[Metric Mouse]

I can't see any advantages of a 401k loan out weighing the disadvantages. A Heloc may be advantageous, depending on the terms. Student loans are usually pretty generous to begin with.

[Pizzabrewer]

I don't understand the constant negative reaction to a 401k loan.  You pay the interest back to yourself.  Assuming you understand and can manage the repayment if you leave the job, it's better than any alternative.

[MisterTwoForty]

You should be working through grad school and paying cash.   I would not take out any new loans.

[jedsbud]

I don't understand the constant negative reaction to a 401k loan.  You pay the interest back to yourself.  Assuming you understand and can manage the repayment if you leave the job, it's better than any alternative.

My issue with the 401k loan is the payments and interest are made with after tax income, then when you withdraw at retirement you pay taxes again.  So it is like getting taxed twice on some of your money. 

[Pizzabrewer]

If you need to take out a loan, say $10k to buy a car, you're saying it's better to borrow from a third party and pay them the interest than to borrow from your (pre-tax) 401k and pay yourself back the interest?  That doesn't seem to make sense.

[Lyngi]

When borrowing from your 401K, the money is removed from whatever investments you have them in.  So if the stock market rises sharply, then you lose out on the gains you would have gotten had you left it alone.  For example, in 2010 or 2011 (I didn't really pay much attention) my 401K rose something like 25%.  So I would have forfeited the 25% on 10K.  The next year it rose 16%.  Also, if you quit or fired from your job, the loan comes due within 30 to 90 days.  If you can't pay, then you have to pay tax on it, plus the 10% penalty.  OUCHIE

[Stachless]

When borrowing from your 401K, the money is removed from whatever investments you have them in.  So if the stock market rises sharply, then you lose out on the gains you would have gotten had you left it alone.  For example, in 2010 or 2011 (I didn't really pay much attention) my 401K rose something like 25%.  So I would have forfeited the 25% on 10K.  The next year it rose 16%.  Also, if you quit or fired from your job, the loan comes due within 30 to 90 days.  If you can't pay, then you have to pay tax on it, plus the 10% penalty.  OUCHIE

OK, but what happens if the market drops (remember: it does that sometimes!) ?  Is it as simple as paying yourself back with interest and lowering your basis and owning more shares?

[terran]

I don't understand the constant negative reaction to a 401k loan.  You pay the interest back to yourself.  Assuming you understand and can manage the repayment if you leave the job, it's better than any alternative.

My issue with the 401k loan is the payments and interest are made with after tax income, then when you withdraw at retirement you pay taxes again.  So it is like getting taxed twice on some of your money.

But you didn't pay taxes on it in the first place. So it still went in tax free, and is taxed on the way out, you just borrow it (no taxes) and pay it back (already taxed) in the middle. As far as the tax treatment aspect it's not really that different than not having borrowed at all.