is it a bad idea to borrow from our 401k's to pay for our wedding?

Answer 1

Its not necessarily a bad idea but consider the following:

The Cons: The interest rate is going to be between 8-9%. Its not tax deductible. The repayment period will be no longer than 5 years, so the payment may be high. If you leave the job, you maybe required to repay the loan in full, immediately.

Pros: You'll be paying yourself the 8-9% interest. Don't believe it shows up on your credit report.

So, you should think about this before acting.

Answer 2

I'm looking at this only from the aspect that you are having the wedding and are either going to take a loan from a banl or from your 401k.

I ran #'s in Excel...simplifying it just for ease.

If you contribute 200/mnth and earn 10% for 30 years you will have 452,100 in 30 years.

If you take a loan in year 10 of $15k. Loan interest rate is 7%, payments are about $300 and you continue to put in your original $200. Account balance at 30 years is 444,000. That 15k loan has cost you 8,000 of your retirement. Bad, but not a killer to have the wedding of your dreams.

If you terminate after 2 years and pay the loan back in full and continue to make $200 contributions at your new employer. Your account balance 448,000. Better than leaving it out for entire 5 years but still not as good as never taking it.

If you terminate after 2 years and DONT pay the loan back...but continue to make $200 contribution at your new employer your account balance will be 381,100. That 15k loan has cost you $60,000.

Last scenario: take the loan but stop making deferrals during 5 year payback period? Balance is $372,000. That 15k loan just cost you $70,000.

So, as you can see...if you pay it back IN FULL and continue to make your usual contributions then taking a loan won't kill you. If you fail to do both of those things then you can count on working another 2-3 years longer than you would have hoped.

These are simple calculations and missing lots of little pieces. They are designed to simply show you that you can take a loan (despite what these people say) and come out ok. But, if you don't pay it back or lower your contributions then you're basically shooting yourself in the foot and killing your future. In that case it's NOT WORTH IT.

But if you're diligent and have a stable job then by all means tap the 401k. It's certainly better than taking a loan from a bank or paying cash and not tapping it. Because THAT money is gone and the earnings can never be recovered. At least with the 401k loan you can recover some of it.

Answer 3

I borrow money from my 401k all the time. I think it’s a good idea to pay off the credit cards using 401k account then never use the credit card again; the best card is the debit card. The money you borrow from your own 401k account the principal and interest on the loan goes directly to your account and you have 1 to 5 years to pay off that to come directly out of your pay check so you don’t have to worry about the payment. On the other hand with credit you will be paying principal plus interest to the credit card company.

Answer 4

Yes, it is a very bad idea. And, since you asked, If you aren't thinking about your future very seriously, are you sure you're ready to be married? And to a person who doesn't insist that you are the most secure you can be in your old age?

Remember - once you have the wedding, you eneter into a MARRIAGE!! Spend a month reading about marriage instead of looking at all the wedding mags. It will be time well spent.

Sorry to be a downer, but you HAVE to protect yourself long term! It doesn't sound like you're thinking that way.

Answer 5

You should not borrow against your 401(k) unless it's a last resort to necessary, and life-urgent event, for example emergency medical care(not covered by insurance), or for a car (it's your primary source of transportation).

The size/cost of a wedding is a lifestyle choice.

Depending on your employer, taking out a loan may penalize you from matching funds or other benefits.

If you should default on your loan, then you are subject to the withholding penalties and income tax, as another poster mentioned.

Answer 6

Finances are the most common problem in divorce. Financial problems cause lots of stress. You can have a beautiful wedding without effecting your financial future. Don't touch the 401K. Get married in a park with a few close friends and family. I went to one of those and it was the best. Intimate friends sharing your day. My wedding cost $40,000 and now I'm single.

Answer 7

Consider your 401(k) off limits until retirement. If you do take out a loan, you are not taxed or penalized on it unless you default. But, if you lose your job or decide to quit, you might be forced to pay the loan back 100% immediately. Plus, your money is not earning a return while it's out on loan, so it affects your future. Another thing, when you contribute to your 401(k), it is with before-tax funds. But when you repay money into your 401(k), it is with after-tax funds. So, the loan repayments you make have already been taxed and they will be taxed again when you ultimately withdraw the money when you retire! So you will be double taxed!!!

Answer 8

In addition to withdrawals being taxable there will be an additional 10% penalty.
401 is for retirement . . . misuse like this would be a very bad omen as it would indicate total financial ignorance.
If you have to rob your retirement to pay for a wedding you should NOT be having such an extravagant event.
It would be the first step towards divorce court.

Answer 9

yes..yes...yes... 401's are for long term saving..any money you take out is money that is not earning...plan a simpler wedding

Answer 10

very bad idea! you will need that money later on in life