I did a little checking, it looks like as a defensive move it could work, but if I get laid off or quit, then I have 60 days to pay it all back, or face fines. If I don’t pay it back, they want 5 per cent right off the top and then tax the remaining funds left, etc etc.
We could borrow up to 50k (or half, whichever is less) and then sit on it, but payroll deductions have to be used to pay it back. That might be a good idea, but some plans don’t allow new contributions while paying back a loan. Might be offset somewhat by a lower taxable income in future years? Kind of a pain, but am still considering this.
1. They DO allow me to keep contributing while I repay the loan.
2. The interest rate is fixed for the full term of the loan (as long as five years).
Item #2 is a huge advantage especially if interest rates rise. It even works well in a low-interest environment like we see today if you have the ability to borrow the money, invest it in something that gives a decent rate of return OUTSIDE your 401(k) plan, and then pocket the difference (after paying taxes on it) as you pay the loan off.