Saving for a Rainy, Leaky Day
O, The Oprah Magazine | From the Winter 2006 issue of O, The Oprah Magazine
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Promise me you will not listen to anyone who suggests that taking a loan from your 401(k) is a great way to pay for a large home repair. It can be a doubly costly mistake. Money you've invested in your 401(k) has not been taxed; the money is deducted from your paycheck before Uncle Sam takes his bite. But if you decide to take a loan from the 401(k), eventually you'll have to repay it with money you've already paid taxes on. Come retirement time, when you start to make withdrawals from your 401(k), you will owe taxes on that money again. That means you will pay tax twice on the money you use to repay the loan. Now tell me, where's the logic in that? |
