A friend of mine has an idea to take a 401k loan out and withdraw some of his money. Then, he'll deduct the capital loss from his 2008 taxes and reinvest the money back into sticks or mutual funds. I said I think there's something wrong there... Can someone take a capital loss on 401k losses? Also, I think he'll be subject to the 20% hit on the money (which will go towards income taxes) and the 10% excise hit. Plus, he'll be paying the 401k loan back with interest.

Please advise.