The Truth About Borrowing Against Your
401k
Sometimes, when you put all of your effort
into saving for retirement, you get to a point where you need a bit of extra
money. Maybe your children's tuition payments are due. Maybe you have medical
bills that need to be paid. Or maybe you're planning to buy a home of your
own and you need to come up with money for the down payment. So you start
wondering where the money is going to come from. And you start to think about
borrowing against your 401k.
There are some advantages to borrowing against
your 401k. Typically, you will be able to get the money that you need quickly.
There isn't a lengthy approval process because the money that you will be
borrowing is -ultimately -your own.
Further, when you are borrowing against your
401k, you are not actually withdrawing the money from the account, and therefore
you will not have to pay the 10 percent penalty -though you will have to
pay back the money that you borrow with interest.
Of course, just as borrowing against your
401k has advantages, it also has disadvantages. Because you have borrowed
the money from your 401k, it is no longer in the account and therefore no
longer earning interest. Also, because your 401k account is controlled by
your employer, typically the money that you borrow from your 401k will be
paid back in deductions from your paycheck.
Therefore it is important to consider that
borrowing from your 401k will affect your income -both now and after you've
retired. And there is one other thing that you should consider before borrowing
from your 401k -what would happen if you were to leave your job.
If you leave your job -whether it's because
you've found something better or the company has chosen to downsize -you
are responsible for paying back all of the money you have borrowed from your
401k. If you can't, then you will be responsible for paying the taxes and
the 10 percent early withdrawal penalty for removing money from your 401k
account.
Because of the disadvantages of borrowing
from your 401k, you need to make the decision very carefully. You should take
the time to take a closer look at all of your savings and investments before
you borrow against the account.
One way to get a closer look at all of your
retirement accounts when you need to come up with some extra money is to download
our free retirement calculator. With this retirement calculator, you'll be
able to evaluate the way all of your retirement savings accounts -as well
as the stocks, bonds and mutual funds in which you've invested -to see how
they have performed over time.
Further, you will be able to get projections
about how your savings and investments will perform over the next 25 years.
Those projections will take into consideration changing interest rates and
the effects of inflation on your retirement savings.
But even more importantly, you'll be able
to take a look at the way changes that you make to your savings and investment
strategies will affect the income that you have when you retire. These changes
may be investing in different stocks or mutual funds. These changes might
also be withdrawals from your retirement savings.
If you have any questions after you've used
our retirement calculator, you'll be able to get answers: when you download
our free retirement calculator you will also be contacted for a free one-on-one
consultation with a financial advisor. You'll be able to ask about borrowing
against your 401k and whether or not it is the best idea for you.
You'll be able to develop a plan for getting
the money that you need and you'll be able to make sure that your retirement
savings will still provide you the income that you need when you retire.
If you're thinking about borrowing against
your 401k, you owe it to yourself to make sure that you are making the right
decision. Understand borrowing from your retirement savings and the way that
it will affect the income you have once you no longer have a steady paycheck.
Click the red button below to download our free retirement calculator and
get the information that you need to make an informed decision.
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