I think A LOT of people refuse to realize that borrowing against the 401k and withdrawing from the 401k are very very different. Even Suze has misinformation about this.
|...if you change jobs/quit/lose your job, in which case the money is due immediately and subject to taxes and a 10% penalty.
this is 100% wrong because of ONE word. The money is due immediately OR
subject to taxes and a 10% penalty, these are two very different statements.
Borrowing against 401k is a risk, but most 26 year olds do not have a 401k, and 99.999% of all investment advice out there is for the 40+ crowd
, so there are no "one size fits all" rules for a 20something with a 401k in my opinion. (I am not a fan of one-size financial advice, because it is stupid to follow blind advice when you have access to the real numbers for real math.)
People hate paying income tax. Given the opportunity, they will OFTEN make STUPID financial decisions in order to avoid paying it, for any reason. Case-in-point... mortgage meltdown. One of the biggest reasons I saw for people buying houses when they really weren't in the position to do so was "But you are throwing your money away on rent, and there are huge tax advantages to home ownership". People focus much more on where their money goes more than on HOW MUCH, which is pretty much the worst idea ever.
The truth is, it is easier for the typical person to grow a 401k than it is a savings account, for a myriad of reasons... It is pre-tax so you spend 150 to deposit 200 (assuming no company match), it is hard to withdraw, so you won't, it is hard to borrow, so you will wait untill you actually need to, it comes directly out of your check, so you don't "forget" to budget it. Once you do borrow, it is also automatically paid back from your paychec *gasp* after tax, plus you are still contributing pre-tax, so your balance grows even faster.
I think only you can make the decision, but you should do it with your eyes open
1) Will you save the money even if you are not "forced" to in your 401k?
2) How well is your 401k performing, better or worse than the interest rate you will be paying yourself on the loan? If it is performing better, then this will have a negative effect on your retirement balance in the future (even if minimal, you should look at how much it will hurt you in the future; if the interest rate is higher, then you will be affecting a positive change in your future balance, at the expense of your budget at age 26, are you ok with that?
3) Are you ok with the payment terms? The repayment of a 401k loan comes out of your paycheck, and you need to make sure that your homeowner budget takes that into account.
4) Double taxing, you are consciously making the decision to pay the government for the right to borrow money from your own tax deferred asset. Paying the government more than you absolutly have to drives some people crazy, are you going to be ok with it?
Retirement savings are about feeling the burn when you are young so you don't have to when you are old. If you CAN handle it at age 26 and this is the plan that you are walking in to, rather than an impulse with unintended consequences, then well, you have made a financial decision that you can live with.