Borrow from your 401(k)?
The general answer is "Don't." You're cutting into your retirement assets; the amount borrowed is not appreciating with the rest of your account; and if you leave the job without paying it back, it becomes a withdrawal, with taxes and maybe a penalty due on the amount.
On the other hand, it is tempting. The cost of the loan is much lower than you'd find elsewhere. If you are in dire straits—facing foreclosure, perhaps, a spouse's lost job or huge medical bills—this may be a reasonable choice. But it's unwise to tap long-term retirement savings to pay off a short-term debt.
Another reason not to borrow is that it gets to be a bad habit. According to financial firms that handle retirement accounts, once workers borrow from their retirement accounts, they often find it easy to come back and borrow again. And again. This serial borrowing can permanently impair one's long-term savings.
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.
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