Jul 27

Is it OK to Borrow From Your 401k?

As reported by the TransAmerica Center for Retirement Studies, more than 1/3 of those with 401k plans who lost their job have taken money from their retirement savings.  Furthermore, 20 to 30% are borrowing from their plans and defaulting on those loans costing as high as $37 billion a year according to Navigant Consulting.

If at all possible, avoid dipping into your 401k plans.  If you are forced to, considering the following: if you’re under age 59 1/2, you’ll be paying a 10% penalty on top of the federal and state taxes.  A $50,000.00 nest egg could turn into almost half that amount!  In turn, if you leave that $50,000.00 in your plan, even a 3% return on investment will take your 401k to $77,000.00 in 15 years.  This article delves deeper.

Taking out a loan is not a good solution either.  If you lose your job, you usually have to repay the loan with in 60 days, or face the same taxes and fees.  Here, David Nicklaus, points out a new idea called “loan-default insurance”.

Let the tax experts over at the IRA Financial Group help you sort through your 401k questions.