401k loan for my puppy?

This week’s question:

"Hey Tess!! A bit about me....I’m 40. I have about $200,000 between my 401(k) and IRA. I had a puppy emergency last year and ended up with $10k in unexpected credit card debt. I’m tempted to take a loan from my 401(k) to just be done with it because I know the interest rate is well above 20% and I hate it.... is that a bad idea? What should I do?"

Thoughts from Tess:

First, you're doing a lot right.

At 40, having $200,000 already invested puts you in a really solid spot. If that money is invested properly (and you're not paying too much in hidden fees) and earns an average 7% return, you’re on track for it to grow to around $1 million by age 65, even if you didn’t add another penny.

That’s the power of compound interest as long as you leave it there to do its job and you're invested in the right simple, low-fee investments.

So, when we talk about pulling from your 401(k), even temporarily, we’re not just talking about the dollars coming out today. We’re talking about what those dollars could have turned into over time.

Let’s break it down:

✅ The pros of a 401(k) loan:

👉 The interest rate is almost always way lower than 20% credit card interest.

👉 When you borrow money from your 401(k), you're basically taking money out of your retirement account and then slowly putting it back in.

The interest you pay? It does go back to your own account so you’re technically paying yourself back....but there’s a HUGE catch:

• You’re missing out on growth.
  While that money is out, it’s not in the stock market working for your future. That’s money that could’ve been growing into way more over time.

• You pay extra taxes.
  You repay the loan with money you’ve already paid taxes on... and then you’ll pay taxes again when you take it out in retirement. So you get taxed twice on that money.

So yes, you’re paying yourself interest, but it’s still costing you more than you think.

⚠️ But the cons:

👉 That money comes out of the market and while it’s out, it’s not growing.

👉 You’ll repay the loan with after-tax dollars, and then pay taxes again later when you withdraw in retirement, essentially getting taxed twice on those dollars.

So, what should you do?

I get the appeal...debt feels heavy, and a quick fix is tempting. But here’s what I’d recommend:

1. Start with a short-term debt payoff plan. Can you aggressively pay this off in 6–12 months with a focused budget?

2. Consider a 0% interest balance transfer if your credit allows. It buys time without dipping into retirement.

3. Run the numbers. How much would you actually lose in future growth by taking, say, $10K out of your 401(k)? (Spoiler: it could be tens of thousands over time.)

4. Keep the 401(k) loan as a last resort, not a first move. It’s better than defaulting or staying in high-interest debt forever but it’s still borrowing from your future.

You're not behind, you're just at a decision point. And the fact that you're weighing your options means you're already doing this with more thought than most.

You’ve built a strong financial foundation. Let’s protect it and build a plan that clears your debt without sacrificing your future freedom.

Money Mindshare

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