The Story of Box A and Box B
401k Loans

Box B
The “Lending” Box

You may be thinking that a “401k loan” is a solution. It is not. 401k loan money is not taxed (unless you fail to repay it, when it then becomes a premature withdrawal which is taxed and penalized); however, 401k loans must be repaid with after tax dollars. Therefore, you are replacing untaxed dollars in the plan with taxed dollars in the plan. The same rules apply: when you take it out later at retirement it will be taxed again. Using a 401k loans creates multiple taxation, a phenomenally expensive way to finance things.

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