Anyone Ever Taken a Roth 401K loan?

bee

Looking at the dynamics of taking a Roth 401K loan.

The Pandemic Relief Provision (CARES Act) allows 100% of your 401K balance up to $100K (increased from 50% of the first $100K) available as a loan. Loan fee is $375. Interest rate is Prime +1% (4.25%) which would be paid back (along with principle) to the Roth 401K account. There are a variety of terms from 3-30 years (interest rate and fees are the same).

In essence you are the bank. Proceeds in this case would be used to purchase a residential (first home) property.

Curious if anyone has taken a Roth 401K loan and whether you have any resources for additional information?

One specific question:
Since this is a Roth 401K loan, would the interest portion of the re-payment be added back into the Roth 401K account balance along with the principle? I am thinking... yes... since the interest repayment is an after tax payment and would then grow tax free.

MikeM

We used to do it all the time back in the 80s-90s for home improvement projects or paying off credit cards. Used it to pay some tuition costs when the kids were in college too. Like you said, you are the bank so principle and interest you pay goes back into the 401k. The draw back at the time was that money was "dead" money that you weren't able to be invest for higher returns in the market or even in the GIC account which was making in the 8% rate at the time. But, worked for us.

MikeM

Since this is a Roth 401K loan, would the interest portion of the re-payment be added back into the Roth 401K account balance along with the principle? I am thinking... yes...

The answer was yes when I was doing it.

bee

Thanks @MikeM