The Rules: Understanding Your 401(k) 20 Loans About 83 percent of all 401(k) plans offer loans. If they didn't, they would likely be less popular-- many employees would figure, "If I can't get it out, I won't put it in!" So, to get employees to enroll in 401(k) plans, many plan sponsors have decided to offer what could be an expensive trap. Warning! Put it in pre-tax, pay it back after tax! One fact that is often overlooked is the "double taxation" on loans. You see, when you repay that loan, you're repaying it with after-tax dollars. Eventually, when you cash out of the 401(k) plan, you'll pay tax on that after-tax loan payment and the interest--again. While our legal system protects us from being tried twice for the same crime (known as double jeopardy), with 401(k) plans you will pay twice for taking that single loan. Now that's a crime! Employees may be tempted to hit their 401(k) accounts when short on money. Why? As Willie Sutton, the notorious bank robber, answered when asked why he robbed banks, "Because that's where the money is!" Said another way, few Americans have an emergency fund for the unexpected. But although your 401(k) plan may allow you to borrow money out of your account, it may not be a wise move for you to do so. We'll talk more about these dangers in Chapter 17, "Borrowing from