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I want to borrow against my 401k plan?

Apr 05, 2014 by Harry from Amherst, OH in  |  Flag
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2 votes
Rich Winer Level 20

Is that a question or a statement? I think it's rarely a good idea to borrow from your 401K, only in a dire emergency where you have no other source of funds. Most of the time people borrow from their 401K, they don't pay it back. Also, by taking a loan, you not only deplete your retirement savings, you also lose out on weeks, months or years of additional tax-deferred growth.

Comment   |  Flag   |  Apr 05, 2014 from Woodland Hills, CA

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The term "loan" is a misnomer. You can't loan your own money to yourself. In the context of a 401(k) it is simply moving ones money from a tax deferred account to a taxable situation and hopefully back if the "loan" is repaid. Anyway, Rich is right. Don't rob your retirement quality of life for today.

Comment   |  Flag   |  Apr 05, 2014 from Woodbridge, VA

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Good points above from John and Rich. I agree with them that unless there is no other choice its generally not a good idea. But if you have to do it, there is one other point to beware: make sure your job is secure. If you leave your job for any reason, you have to pay back a loan in only a few short weeks, otherwise its considered a distribution which could be a big tax next year plus a 10% penalty if your under 591/2.

Comment   |  Flag   |  Apr 07, 2014 from Malvern, PA

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Keep in mind you would be using after tax money to repay what may have been a pre-tax contribution. When you retire the government will be taxing that amount for the second time. You also lost the opportunity to participate in the market while the money is out of the account.

Comment   |  Flag   |  Apr 08, 2014 from Hooksett, NH

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Borrow against your 401(k) only as a last resort and no other sources of credit are available. If you need the money for an emergency or something that's terribly important to you or a family member, go for it.

Comment   |  Flag   |  Apr 08, 2014 from Canton, GA

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