Loan from 403b vs Roth 403b

4 Replies

Hello there. Long time lurker, first time poster. 

I've done some research about the possibilities of using a 403b loan as a source of down payment for BRRRR strategy. I'm fairly young and only have 50k in my 403B. Half of it is from employee match and appears to be, according to Fidelty, in a plain Jane 403b while my contribution is in Roth 403b. I'm vested about 45k of the 50k and was planning to take a loan for 20k for a down payment.

Here comes the question: is there any negative tax advantages of taking out a loan from 403b versus Roth 403b? When I go through the process of getting the loan, there is no distinction on where the money is coming from, but I would think it has some tax implications? I have read through multiple posts debunking double taxation from 401k loan, which is pre-tax, but could not find distinction on retirement account loans from pre- or after-tax accounts.

If anyone could shed some light on this, I would greatly appreciate it! Thanks!

@Ryan Thurm

Welcome to BP!

Congrats at having a very healthy 403B balance at such a young age!

I used a 401k loan to fund the downpayment of my first investment property.

I do not think there is a difference between taking a loan against a 403B or a roth 403B. 
When you pay back the loan - you will be using post tax dollars to pay back the loan.
Ex. you make $1,000 gross paycheck which comes out to $750 after taxes. You could use the $750 to pay back the loan(but you can't use the $1,000).

Just as a reminder - If you decide to take a 403B loan - you will need to pay the loan balance in full within 60 days of leaving your employer or being let go. Otherwise you will be subject to taxation and penalty.

@Ryan Thurm

Borrowing from the Roth 403b source over the pretax 403b source is more advantageous since the payments will be tax free when qualified distributions begin.

I have another question to add. I too have recently learned about using these to fund real estate.

Is borrowing from a 403b the same as “rolling into a self directed IRA?” I hear both terms but am unsure if they both are the same thing.

On topic, if my hunch is correct, shifting over to self directed instead of simply borrowing would have tax advantages beyond either of these, since you would simply be changing management of your account. Not taking it out.

@Adam Britt

Borrowing from a 403b results in a participant loan, which means the funds cannot be deposited into an IRA.

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