Good comments by both. We have taken out 401k loans in the past.. It is always tricky and hard deciding to take them out. Knowing that the interest rate is soo good, but yet you are paying out more than just the interest by the possible losses in any gains in those funds.
Was really just putting out my general thoughts, since similar questions about borrowing have come up here elsewhere recently. It's not directed specifically at you. I see the same or similar issue discussed around here all the time.
The real risk to me is that something may happen that may make it impossible to pay the loan back on schedule. In which case all sorts of wonderful IRS penalties kick in and like any other tax debt, those don't go away ever, even in bankruptcy. There are a ton of "gotchas" related to loans from retirement funds and it gets even weirder if you switch employers and no longer have the direct (implicit) cooperation of the 401K trustee. My own take on it has always been that in most cases, if you have to go there, you probably can't safely afford it*. Things may work out, but if they don't the downside can really suck.
The other downside is with 401K loans, you're borrowing against "last resort" money. Best to save that for the major illness or other unexpected catastrophic event. Those "other loans" you could have taken instead at a slightly higher rate will become unavailable to you in an instant if you suddenly need them and in a last resort can be walked away from. Credit cards and HELOCs get cut immediately if the bank figures out that something's up.
*My own definition of "afford it" is a bit different from most people's these days. It's what my grandfather's generation considered normal and we've gotten really stupid and forgotten about. It's "This decision won't destroy me if things go wrong." Sadly, today's definition is more often than not "I can pay it off if
nothing goes wrong." I find that many people often ignore the "unlikely but catastrophic possibilities" when making such decisions. Most people don't get bitten by them, but that doesn't mean they're not there. [ame="http://www.amazon.com/Black-Swan-Nassim-Nicholas-Taleb/dp/1400063515"]A guy named Taleb wrote a whole book about this phenomenon[/ame].
Obviously, I don't know you, don't know what you needed the money for and can't legally give personal financial advice anyway. It may indeed have been the right decision. Just putting out my
general thoughts on the matter. Probably should have put it elsewhere. I'll shut up now.
