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Should You Borrow From Your 401k Account

21 August, 2014



You may be thinking that the easiest way to get additional funds right now may be to borrow from your 401(k) account. However, this may not be the best decision.

Downsides:
1. You may be missing out on the growth of your assets within your account. Your money will miss time to grow.

2. You may be missing out on any employer match.

3. Some plans state that if you lose or leave your job before age 59-1/2, then you must repay the money in full within 60 days. If you don’t repay the money, you’ll have to pay ordinary income tax on the outstanding amount plus an early-withdrawal penalty of 10 percent.

Benefits:
1. With a 401(k) loan, you’re both the borrower and the lender; you pay yourself the required interest from your loan repayment through a pretax payroll deduction.

A 401(k) Loan Might Work If:
1. You know for a fact that your job is secure and that you’ll be working for your employer for some time.

2. You can predict how the markets will go.

3. You will be 59-1/2 during the loan period.

4. You don’t have any other options, such as borrowing from your home equity.

So before you make that important decision as to whether or not to borrow from your 401(k) account, consider both sides before you make a decision. Or else, call our office and we’ll discuss this in detail with you.

SMART MONEY TIPS are published to provide practical personal financial tips relating to budgeting, saving, spending, debt, credit, financial wellness, planning for the future, and other personal finance topics. For comments or questions, please e-mail us at Linda@LStortzCPA.com.

We are located in the Tampa Bay, Florida area and are dedicated to educating individuals to take control of their personal finances and financial future. Services include confidential personal financial coaching, counseling, mentoring, and financial education through financial literacy workshops and seminars. Linda A. Stortz is a CPA. Accredited Financial Counselor, and Certified Identity Theft Risk Management Specialist.

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