Suze Orman says everyone should invest in a 401(k) – but never use it for this

Core Viewpoint - Taking a loan from a 401(k) is highly discouraged due to the implications of double taxation and opportunity costs associated with the borrowed funds [1][2][6]. Group 1: Tax Implications - Borrowing from a traditional 401(k) means repaying with after-tax dollars into a pre-tax account, leading to double taxation when funds are withdrawn [2][7]. - If an individual loses their job before repaying the loan, the remaining balance will be taxed as ordinary income, plus a 10% penalty if under the age of 59.5 [3][7]. Group 2: Opportunity Costs - The opportunity cost of a 401(k) loan is significant, as it equates to the lost growth on the borrowed funds. For instance, if the account has an 8% total return, the effective cost of the loan is also 8% [6][7]. Group 3: Alternative Options - Financial experts recommend exploring other options, such as home equity loans or personal loans, before considering a 401(k) loan. Consulting with a financial advisor is advised to avoid financial missteps [4][5].