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Borrowing From Your 401(k): The Good, The Bad, The Ugly

August 13, 2018
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Borrowing from your 401(k) can at times seem like a no-brainer when you are presented with an emergency or strapped for cash. But there are precautions to take when determining whether or not this is the right decision for you.

 The Good

  • No credit check. Especially advantageous when having trouble getting approved for credit.
  • Convenient
  • Competitive Interest Rates

 The Bad

  • The money borrowed will no longer take advantage of the returns within the 401(k) investment.
  • Many times contributions stop when borrowing funds.
  • Needing to borrow from your 401(k) could be a precursor to bad spending habits that should be addressed.

The Ugly

  • If you switch jobs or are laid off, your 401(k) loan becomes due. If you cannot immediately pay it back, you are subject to income taxes and a 10% penalty tax.
  • Your take home pay will be reduced via automatic paycheck deduction to pay off the loan.
  • If you borrow from retirement to pay off other debts, you are simply replacing one debt for another. 

While caution should be taken while making this decision, there are times that it may be the appropriate decision, you should refer to your financial expert before taking any additional steps.

John recently posted a video about this topic to our blog, check it out for more information!