Recovering from a disaster with a 401(k) loan - not an easy decision

The story you are about to read is 100% true and happened over the last 4 years of my life. I hope it will serve as a cautionary tale for anyone considering taking out a 401(k) loan for any reason other than buying a house. If you know anyone in their 20s who has a new 401(k) account, please make sure they read this thread.<br><br>In 2010, I had just moved from New York to Florida. I was 29 years old, having just graduated college, and was entering the workforce for the first time in my life. I was also pretty much broke having spent most of my savings over the past four years of college.<br><br>Finally! I had a job. I put $250/month into my 401(k) at 50% company match, which I think is standard for most companies. After a year, I had saved up $12,000. <br><br>Fast forward a year to 2011. On a whim, I decided to buy a house. Now I had no savings, no money for a down payment, and poor credit. But a local bank offered me a mortgage anyway! After getting this mortgage, I took out $12,000 from my 401(k) to pay for the closing costs, inspection, and 10% down payment. <br><br>This turned out to be a disaster. I kept my old apartment in NYC and continued to pay rent for the next several years. The neighborhood in Florida turned out to be a slum with a high crime area and nearby gang activity. <br><br>In 2014, I sold the house at a net loss of $40,000 after realtor fees. I still owe $6,000 in back taxes to the IRS. I managed to get my money back through a first-time homebuyer program.<br><br>Fast forward to today, 2023. My 401(k) is now back at the $12,000 level, 12 years after I first contributed to it. <br><br>I can only imagine how much money I would have today if I had never taken out the loan. Oh well, I learned a valuable lesson.<br><br>&#x200B;<br><br>EDIT: Wow, thank you everyone for the huge response. I did end up paying back the loan fully, but had to pay a 10% penalty fee to the IRS and income tax on the loan amount. <br><br>I also continued to contribute to my 401(k) over the years, which is why I was able to recover some of the lost amount. <br><br>This was definitely a costly mistake, but luckily not as costly as it could have been if I had not paid back the loan amount.