Permalink Submitted by Alan - IRA critic on Thu, 2023-11-30 15:23
Post tax. The amount you borrowed was already pre tax and remained so because the loan was not a taxed distribution. In addition, the interest you pay on the loan repayment is not deductible.
Permalink Submitted by David Mertz on Thu, 2023-11-30 21:41
Money is fungible. When you pay back the loan, you are paying back the principal with the money you took out. The fact that you are substituting other dollars (such as those from your paycheck) for the dollars taken out is irrelevant. The result is that you are not paying taxes twice on this money. The only portion subject to double taxation is the interest that you are required to pay on the loan; the interest paid into the 401(k) does not create after-tax basis in the 401(k).
Permalink Submitted by Alan - IRA critic on Thu, 2023-11-30 15:23
Post tax. The amount you borrowed was already pre tax and remained so because the loan was not a taxed distribution. In addition, the interest you pay on the loan repayment is not deductible.
Permalink Submitted by David Mertz on Thu, 2023-11-30 21:41
Money is fungible. When you pay back the loan, you are paying back the principal with the money you took out. The fact that you are substituting other dollars (such as those from your paycheck) for the dollars taken out is irrelevant. The result is that you are not paying taxes twice on this money. The only portion subject to double taxation is the interest that you are required to pay on the loan; the interest paid into the 401(k) does not create after-tax basis in the 401(k).