Pros/Cons of using Roth IRA principal to repay 401(k) loan
Tl;dr: seeking advice on 401k loan repayment. Should I withdrawal $19k principal from Roth IRA to payoff an outstanding 401(k) loan?
Context: mid-20s CPA earning just over $100k salary + around 5% annual bonus. Mid-700s credit score, have paid every account on time. Assets include $140k 401(k), $25k in roth IRA ($21k principal, remaining is earnings), $6k investment account ($2k in unrealized gains), $7k in HSA (entirely used as investment vehicle with funds invested in S&P 500 index), and house valued at $350k. Liabilities consist of $347k in mortgage loans at 6%, $17k in credit card debt (all sitting in two 0% interest cards until Spring 2027), student loans with $12k remaining balance with avg rate of below 4%, and $19k 401(k) loan.
401k loan was used to help with home purchase 2 years ago. After going through a severe depression episode, having to remodel a bathroom due to a tub leak (half of the credit card debt came from this), and going on a little too high of a spending spree to numb the depression pain, I'm trying to turn my financial life back into order.
I used Tiller for past 3 months to help with identifying spending patterns. Long-term goal is to improve is monthly cash flow to support mortgage payments for buying a second home near my childhood town. Short-term goal is to get rid of credit card debt; even though it is at 0% interest, I have done this for 3 years now and I'm tired of constantly rolling it over and paying 3% to 5% balance transfer fee. The 401(k) loan is taking up \~$240/biweekly paycheck, roughly $500/month. I would rather use this monies to begin paying down the 0% interest credit card debt before it begins charging interest next year, and then keep this extra cash flow for a new mortgage payment.
Going through options, one idea is payoff the 401(k) loan with the principal contributions I've built up in my Roth IRA. Both the 401(k) assets and the Roth IRA are invested in similar funds that track the S&P 500 index. My 401(k) contributions are made on after-tax basis with the 1/2 employer contribution being made before tax. Knowing these two facts, I don't see a major difference with funds held in the 401(k) versus the Roth IRA.
Pros
* Paying off the 401(k) loans would increase monthly cash flow by \~$500 a month. This cash can be used to pay down credit card 0% interest debt.
* The transfer of monies from the Roth IRA to the 401(k) wouldn't impact my net worth. This is transfer from one asset to another.
* I eliminate paying interest on the 401(k) loans.
Cons
* Less liquidity. The main factor in choosing a Roth IRA instead of a traditional IRA was to have principal contributions as an emergency cash source. If I payoff 401(k) loan with these funds, I won't have the same access to these funds. I could get another 401(k) loan if it was absolutely necessary, though I would likely use a 0% interest credit card if it came to this point.
* Less investment options available through 401(k) as compared to Roth IRA. Not as big of concern since most monies are in an index tracking S&P 500 performance.
* With annual contribution limits on Roth IRA + income limits, I would lose the progress I've made the last 3 years on maxing out contributions to this account. **This is the primary concern that has me question if this strategy is optimal for the long-run.** I am not sure if this should be a concern as my 401(k) is mostly after tax contributions (functionally same as Roth IRA).
Seeking advice on this strategy. Are there pros/cons variables I have not considered? Does this strategy make sense?
Bless all of you for any advice :)