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Investing Specialists

401(k) Loans: Mythbusters Edition

Confusion abounds when it comes to taxes, payback terms, and ROI.

The topic of 401(k) loans seems to ignite divergent--and passionate--responses from personal finance experts and investors. At one end of the spectrum are those who believe that 401(k) loans should be marked with a skull and crossbones; investors who take out the loans seriously jeopardize their retirement security. At the other end of the spectrum are those who view 401(k) loans as a valuable tool for achieving financial goals before retirement.

At the risk of sounding wishy-washy, I believe that both camps make valid points. As 401(k) naysayers are quick to point out, it's never ideal to raid your retirement fund prematurely; doing so can deprive your retirement assets from some valuable compounding. But as 401(k) loan proponents note 401(k) loans can beat more costly forms of financing walking away.