How do I borrow/take from my 401k? And is it wise?

Question

I just want to borrow like 1,000 to 2,000 from my 401k. ANy idea how? I was told how to do it but I forgot. Would it be wise?

Yikes, I didnt expect all these answers, though, good stuff. Yeah, I heard I can borrow instead of taking out.

All these answers are very good, thanks all. LOL KGB, its almost the truth

Answer 1

It is not wise.

Read this:

http://www.debtxs.com/content/should-i-borrow-from-my-401k-plan-to-payoff-my-debts/

(Any 'financial advisor' that does not explain this to you should be fired on the spot!!)

Answer 2

Metalsoft should go to jail (or at least be fined heavily) for saying annuities are a "good" product, they are demonstrably the WORST investment option for anyone who expects to live more than another 20 years....they also pay brokers the highest commission of any product, which might explain why people like to sell them to suckers with poor basic math skills!

But to answer you question, making a withdrawal from a 401(k) before you are 59 1/2 is ALWAYS a terrible idea, and borrowing from it is ALMOST always a terrible idea. Withdrawing money involves a 10% penalty plus the tax due, so effectively you are paying (10% + your income tax rate) as a fee! Borrowing from a typical 401(k) costs you the potential growth lost (usually ~12%/year) PLUS the interest you have to pay (albeit it to yourself), and has the added risk that if you default on this "loan", it ALL becomes due, and the administrator can SELL your holdings to pay your payments, losing you even more money!

You do not need $1,000-$2,000 that badly!

If you actually DO need it, you need another job plus some money management classes!

Good luck! Don't do it!

Answer 3

I did it, and here's how it was explained to me by my financial planner --

Do NOT withdraw from the account; you will pay a penalty and the taxes on it. Instead, borrow from it. You will pay an interest on the loan, but you're actually paying the interest to yourself (I don't recall if it's all or part of the interest). In other words, the payment and the interest will be going back into the account. Because you're making monthly payments, it won't accrue as quickly as if the money was always there, but you're not penalized. It's not the greatest idea, because you're saving against retirement, but it is certainly better than credit card rates. Talk to your HR rep or the company's 401K manager for the process and paperwork (mine was in an independent account, so I did it through my financial analyst).

Answer 4

How: ask the benefits administrator of your company. IF your plan allows loans, they can get you the paperwork. Not all 401(k) plans allow withdraws.

Is it wise? The answer is nearly always no. WHEN you leave the job, you have 60 days to repay the loan or the KGB (aka IRS) considers it an early withdraw. That means you pay a 10% penalty AND must include the full amount in your taxable income.

Answer 5

I used to have a series 6 and 26 license. I can tell you without hesitation an annuity is absolutely the best product out there. Go investigate but stay away from World Marketing or World Alliance they are tricksters, are under investigation, have millions in unpaid SEC fines and every time they get shut down they simply re-open under another name. Any company under the AEGON group in general. And if you run across any 801k's...run, hang up the phone, delete the email or slam the door. Its also a scam. Take the 401k and roll it into an annuity. Pacific life has good returns on thiers.

Answer 6

No, it would not be wise.

If you want to do it anyone, ask your HR department for the forms.