If you borrow 1,000 and pay it back at 5 over one year, the interest is only 50 a year. And if you pay 15 in taxes on that 50, your tax hit only amounts to 7. Thats trivial compared to nationwide personal loan early repayment costs of a payday loan, or even a credit card loan. Possible Penalties. The biggest risk of a 401k loan is that you absolutely must pay it back on schedule.
If you dont, the unpaid portion of the loan gets treated as a withdrawal. You have to pay the tax on it and the 10 early withdrawal penalty if youre under 59 12 years of age. So if youve borrowed 1,000 and only paid back 500, you could owe around 125 in taxes and penalties.
Fortunately, this type of loan is much easier to pay back on time than a payday loan.
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