401K Loans...Good Idea, or Bad?

Started by John R.
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J

John R.

I have been fortunate enough to participate in a 401K retirement program for many years now. One of the options that is available is to take out a personal loan from your retirement account, which you eventually pay back to yourself.. There is a small processing fee that you will not get back. One benefit from doing this is that you pay any interest on the loan back to yourself. What's the downside? The money that you take out for the loan is no longer being invested and providing you earnings towards your retirement.

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Gina B.

For me, that would be a slippery $@!#%. I'm considering my retirement off limits until i need to use it in retirement. I'd be afraid I'd have things come up unexpectedly that would prevent me from paying myself back. But I can see the appeal for certain. instances.

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Kristina C.

I don't have enough in mine to bother borrowing from it. I'm starting to panic a little bit because I'm 55 years old and don't have that much saved for retirement. Sigh.

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Micky H.

I have been fortunate enough to participate in a 401K retirement program for many years now. One of the options that is available is to take out a personal loan from your retirement account, which you eventually pay back to yourself.. There is a small processing fee that you will not get back. One benefit from doing this is that you pay any interest on the loan back to yourself. What's the downside? The money that you take out for the loan is no longer being invested and providing you earnings towards your retirement.

So I don't know if you've researched this already but this is a great question.

So taking into consideration what others have said. It is likely to be a slippery $@!#% for some, but they tend to be a better option than hardship loans or certain high interest loans.

So what are the downsides:

  1. You've taken money out of the market so you won't have that compounding growth
  2. Sure you pay the interest and loan back to yourself, but you're losing money in taxes.
  3. If you lose your job before you pay back your loans you will have all of a sudden have a 60 day deadline to pay it all back or get hit with penalties.
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Shelly S.

In this climate, the possibility of a job loss and suddenly owing the entire balance in 60 days would take the kick out of this for me.

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Rebecca S.

I think there are some special circumstances under which you can withdraw without having to pay the loan back

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Jamie N.

I took out a loan from my 403B and am paying it back over five years with pretax salary deductions. However, I'm planning to move out of state in June to be closer to family and thus will leave my job. I just called Prudential yesterday and found out on my specific plan I can continue paying it on a monthly basis rather than as a lump sum when I quit my job. Phew! I was so relieved to find that out. I was afraid I was going to have to declare it an early withdrawal and pay the 10% penalty and taxes.

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James H.

Only as a last and final resort after you've used all other options.

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Ronda H.

The article of the day was about talking about withdrawing from retirement accounts. It had good information.

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Ryan R.

Had to loan myself to pay our deductible after someone hit and ran from my wife's vehicle. Now I need to pay it back quickly, as we will need it again (considerably more) next month in order to hopefully cover first, last and deposit for a new house to leave in. These rental prices are outrageous, going up and up. Meanwhile my 401K and stock investing are absolutely crashing. Plus paying over 1000 a month in gas for both of us to get to work and drive the kids to school (bus doesn't run out here, their high school is 40 miles away.)

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Daniel R.

Yes, you should take advantage of the program.

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