When you need a chunk of money suddenly—in case of illness, perhaps, or a similar calamity—there are some advantages to borrowing from a 401(K) account. The money is there, the rates are usually reasonable, and the interest goes to yourself, not an anonymous lender. Despite these advantages, though, it’s generally not a good idea.

The simplest reason is that you lose the potential interest your savings would accumulate. In addition, while you’re repaying the loan you’re unlikely to contribute to your account—losing the employer match your contribution would earn and the growth on that money.

Worse yet are the tax consequences of such a loan. In most plans, the loan is secured by the plan balance. If the employee leaves the job before the loan is repaid and the balance is used to repay the loan, the worker owes tax on that amount—unless he puts equivalent funds back into the plan within 60 days—something like doing a rollover.

For nearly 30 years, Mike Nickerson has owned and managed a small, full-service accounting practice in the Midcoast. He holds a bachelor's degree in accounting from University of Southern Main and a master's degree in financial planning from Bentley University.

He is a past board member and president of the Maine Society of Certified Public Accountants and currently serves on the Maine Board of Accountancy.

An aged rock musician, Nickerson now finds musical enjoyment playing upright and electric bass in a variety of bands spanning folk to jazz music genres. He and his wife have three grown children, and they enjoy their free time hiking, kayaking, golfing, bicycling and motorcycling.

http://www.nickersonpa.com/