Why Is A 401K Loan A Bad Idea? 
That is a great question ! There are some reasons why taking a loan out of your 401k might not be the best option . Before doing so , please consult your plan administrator and be certain to understand the rules for your particular plan . The first reason is that you may lose the ability to contribute to your fund while your loan is outstanding . Some companies will disallow contributions or matches until the loan is repaid . That can seriously derail your long term growth potential of your plan . Other companies will deduct the loan payments from your check , reducing your flexibility with other payments . The second reason is that you lose your tax sheltered advantage . The interest that you are paying yourself on the loan -LRB- you are both borrower and lender in the transaction -RRB- is considered a taxable income by the IRS , and reduces your returns . It 's also possible that the opportunity cost of having invested that repaid interest could be more than what you 'd make having used it in an investment . The third reason is that if you were to God forbid lose your job , the loan amount is repayable within 60 days . If that is n't done , you are subject to a 10 % penalty on the balance , -LRB- if you 're under 59 1/2 -RRB- and are due for whatever State and Federal taxes apply , as it is no longer considered a loan , but an early withdrawal . An alternative to consider might be a home equity line of credit , if the interest rates and your equity allow . Some things to consider . Again , I 'd advise you to speak with your plan administrator and see exactly what your plan rules are . Thanks for asking ! 