2006-12-21 05:59:26 · 13 answers · asked by LoneV 1 in Business & Finance ➔ Personal Finance
Yes, because you are fooling with your future but besides that you have to pay taxes on whatever you take out. The beauty of the 401K is that you have deferred paying taxes on it.
2006-12-21 06:01:06 · answer #1 · answered by Anonymous · 0⤊ 0⤋
This is the ramifications of taking a loan from your 401K: - if you no longer work there for any reason, you need to pay the loan back within 60 days if you don't, you will owe a 10% penalty and standard income tax - while you have a 401K loan, you cannot contribute new money to the account. This means you will miss not only your own contribution but any company match. - while the loan is out, that money does not increase due to changes in the market. A few years ago this was a good thing because most investment were down. But now investments are going back up and you won't be taking advantage of this. There is no tax ramification, if you pay the loan back.
2016-05-23 05:54:40 · answer #2 · answered by Anonymous · 0⤊ 0⤋
It's a bad idea. Here's why. When you go to repay the 401k loan you're repaying the loan with after tax dollars. So, you'll have to pay taxes before you repay. This can be particularly costly. A 28% tax bracket + 6-8% loan + fees = loan shark rates.
Not to mention you'll be missing the possible growth within the 401k and you can't write off the interest.
Think about it.
2006-12-22 07:03:48 · answer #3 · answered by RV 2 · 0⤊ 0⤋
I think it is. The part I think is scary is that if you leave your job (and layoffs. outsourcing, etc. are so common these days) the loan becomes immediately due, so unless you have some other way to get hold of the money quickly you'll be hit with nasty penalties at a time when you may be out of work and really don't need extra financial hassles. And if you do have some other way of getting hold of the money, why not just use that in the first place instead of borrowing from the 401(k)?
2006-12-21 06:04:36 · answer #4 · answered by KimballKinnison 2 · 0⤊ 0⤋
Compare interest rates and penalty fees. It is probably not a good idea unless you are using money to pay off credit card debt. Most credit card debt accrues at 18%! Getting that monkey off your back is a wise investment. Otherwise the only reason i could see for borrowing against your 401k is for some sort of emergency that cannot be forgone. ie; health, etc....
2006-12-21 06:10:14 · answer #5 · answered by Johnny T 2 · 0⤊ 0⤋
I borrowed from my 403(b) - which is like a 401(k) but for public employees or employees of non-profits. I did it to pay off a rather large credit card balance. It was like borrowing from myself. I received a lump sum, paid off the cc, then paid back the amount in monthly payments over a period of about 2 years. The interest rate was lower than what a bank would have been and WAY lower than cc interest. Worked fine and my retirement saving wasn't jeopardized.
2006-12-21 12:20:45 · answer #6 · answered by Kraftee 7 · 0⤊ 0⤋
No, it is not a bad idea......you are borrowing from yourself and then paying it back into your own fund. You do not have to pay withdrawal penalties on loans against your 401k. You only pay penalties or tax if you are "withdrawing" from it, not borrowing against it........there is a difference. When you take a loan against your 401k, it basically is collateral for the loan.....now if you go into default and do not pay it back, then you have to pay withdrawal penalties and taxes on the withdrawal. Typically 401k loans are lower interest than taking a personal loan from a lending institution, but it depends on the rate set by whomever administrates your 401k funds.
2006-12-21 06:02:56 · answer #7 · answered by Scotty 6 · 1⤊ 0⤋
Only do this if you're about to lose the house or you desperately need to pay medical bills for a transplant or something. You can live without a car, but not without retirement security. Don't screw yourself by making yourself just another in a long list of poverty-stricken elderly people. Your nest egg is the thing that will make your golden years golden.
2006-12-21 06:04:50 · answer #8 · answered by cubes001 1 · 0⤊ 0⤋
It depends on how much you are borrowing and how fast you pay it back. I did it because I needed a new roof and would rather pay myself back than pay high interest to the bank. Just try to pay as much back a month as you can, so your money is working for you. Hope this helped.
2006-12-21 06:04:09 · answer #9 · answered by Texas Pineknot 4 · 0⤊ 0⤋
Not the worst idea in the world. You are paying yourself back with interest. The payment comes out of your paycheck so it's automatic. If you don't pay it back it's treated like a distribution.
If you're 100% sure you're going to pay it back, why not? On the flip side don't mess with your retirement money. Make sure you pay it back. Tomorrow is inevitable and you must be prepared. You want to be comfortable. I say go ahead, but make sure to pay it back.
2006-12-21 07:52:06 · answer #10 · answered by Big R 6 · 0⤊ 0⤋