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

Nathalie Edeen:

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!

 


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Securities and investment advisory services offered through Hornor, Townsend & Kent, LLC (HTK), Registered Investment Adviser, Member FINRA/SIPC. 210 Park Avenue Suite 101, Florham Park, NJ 07932 (973) 538-9100. HTK is a wholly-owned subsidiary of The Penn Mutual Life Insurance Company.  Caserta & de Jongh, LLC is independent of HTK, LLC. HTK does not provide legal and tax advice. Always consult a qualified tax advisor regarding your personal tax situation and a qualified legal professional for your personal estate planning situation. 

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Investment advisory and financial planning services are provided by John Caserta, HTK Investment Adviser Representative. Our representatives are insurance and securities licensed in our home state of CT, as well as additional states.  For more information, please contact our office.  This is not an offer or solicitation in any state where not properly licensed.

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