Thinking about taking out a $50,000 roth 401k loan to fund some remodeling. This is the way I am thinking about it as a 59 year old and would like some feedback especially if I have some blind spots.
– Taking profits without really taking profits.
– Hedge against market downturn.
– Low interest that I pay back to myself.
– No double taxation as it is a roth. Post tax money in and tax free money out.
Are there any down sides other than missing out on market gains which at the age of 59 is not a huge consideration.
If I take out the money and there is a %10 correction then I am buying back in at a discount.
Thoughts?
Taking a roth 401k load to fund a house remodel
byu/Impossible_Quiet_537 ininvesting
Posted by Impossible_Quiet_537
5 Comments
[deleted]
Why not just take out a loan at a credit union? Assuming the market will drop 10% is foolish
You have the mechanics right regarding taxes, but your logic on “hedging” and “taking profits” relies heavily on market timing. Here are the blind spots:
* The “Hedge” Fallacy: This only works if the market tanks while the loan is out. If the market rallies (e.g., S&P 500 up 10%+), you are buying back in at a premium. You aren’t just “paying yourself back”; you are incurring a massive opportunity cost by being out of the market.
* Longevity Risk: At 59, “missing out on gains” is absolutely a huge consideration. You likely have a 25+ year investment horizon remaining. You need that compounding to combat inflation in your 70s and 80s.
* Asset Allocation Shift: You are moving $50k from a high-return, liquid asset (securities) to a low-liquidity asset (home remodel) that typically returns only $0.50–$0.70 on the dollar in value.
* You are correct on the tax efficiency. Unlike a Traditional 401k loan, a Roth loan avoids the “double taxation” on interest repayments.
Do this if the interest rate beats a HELOC and you need the remodel, but don’t view it as a clever investment arbitrage. It’s strictly a consumption play.
What will you say if the market grows 10% instead?
This question is impossible to answer without knowing the rest of your financial situation.