Comments on: 3 Reasons Why You Should Not Borrow from Your 401(k) Plan

By: Brent Pittman

Brent Pittman — Fri, 18 Nov 2011 04:07:45 +0000

I cashed out my 401K more than 5 years ago in order to pay off grad school, buy a ring, and get married. That was before I learned about money. I now joke with my wife that her ring and honeymoon would have been much smaller and delayed if I had known about investing.

By: Monjon

Monjon — Tue, 14 Dec 2010 00:21:30 +0000

The double taxation is a total myth. Probably perpetrated by well-meaning TV and Radio financial ‘experts’. No matter where you borrow money from (tax-shelter, bank, Mom, brother, Credit Union… etc.) you pay it back with taxed dollars. People focus on the borrowed money, when you should look at the product you buy with the borrowed money. Example: borrow $1000 to buy a refrigerator – or for that matter pay cash for it. Either way you pay for it with taxed dollars. By using a tax-sheltered account to borrow from you still pay the tax on the dollars you use to but the fridge – not on the money you borrowed.

Double 401(k) taxation is a farce -pure and simple. Anyone who can do math should be able to figure it out! Shame on Suzie Ormond!!!

By: Pinyo

Pinyo — Fri, 13 Aug 2010 12:35:09 +0000

@Nick – The answer depends on a few things: (1) and this is the most important one, if you do this, are you planning to change how you use your credit card, e.g., are you going to put more charges on it? If the answer is yes, then you might as well not do this because you’ll end up depleting your 401k and put more debt onto the credit card, (2) you’ll have to repay the 401k back, will you be able to live off the lower amount from your paychecks for the next 36 months?, (3) how stable is your job? If there’s any chance that your job will disappear, this is a risky move because you have to repay everything all at once.

Good luck.

By: Nick

Nick — Thu, 12 Aug 2010 14:25:51 +0000

I am thinking of barrowing from my 401K to pay off a credit card. Since the market is not gaining and I am actually losing money each quarter is this a good idea? The amount barrowed is around $7,000.00 My company does not match.

By: ken levy

ken levy — Wed, 07 Apr 2010 15:44:01 +0000

Whatever you do never ever borrow from your 401k plan at work. I did in 1997 to finance a move to Alaska. It was the worse mistake I ever made in my life. Today I am retired living on SS and a very small pension check. There are no jobs where I live even if I wanted one. I will be 66 soon and no one will hire you at that age no matter how much experience you have. Now that I should be in a stress free time in the twilight of my life I am having to sell my car and I just moved into a one bedroom with no w/d. I worked 51 years in a row without ever being out of work. I spent my money always thinking I’d have that next paycheck in two weeks. Now I depend on the government to live. If I could go back in time boy would I have done things different. You have to make money in your 20′s and 30′s and 40′s and 50′s. After that its a crap shoot. If only I could go back in time.

By: Peter C Krieger

Peter C Krieger — Sat, 02 Jan 2010 07:47:52 +0000

Does anyone ever consider using a 401K loan to make an deductible (or non-deductible) IRA contribution?
Here’s an example: You have a $10,000 balance in your 401K plan, and $6,000 balance in a deductible IRA.
Your total retirement savings @ this point is $16,000.00
If you take a $5,000.00 loan from the 401K plan, and use that to make a deductible IRA contribution.
Your 401K is now $5,000.00 but your IRA is now $11,000.00 leaving you with $16,000.00 of retirement assets.
You (hopefully) get a tax deduction you otherwise would not have had; you have more choice over where to invest the cash; and if you can still keep up the 401K contributions as you pay down the loan, your balance increases that much more quickly.
Any comments on this?

By: David

David — Mon, 20 Jul 2009 12:57:25 +0000

I would be interested in hearing some opinions on my situation. I am going to school at night, I work full-time during the day, and I am in a deep financial mess. I have a 401K plan that I have now had for 20 years. I was considering taking out a loan. My salary dropped almost $10,000 last year. The recent recession has hurt me more than I thought, and I already have an equity loan that I am paying on. My daughter is starting her second year at college and there are supplies(computer, etc) that I am trying to get. I have back taxes that I need to pay and on top of that is my mortgage and other bills. I have been creative in the way I stay afloat these days, but I see myself sinking in the near future if I dont try something soon. Would using a credit card(with 9.9% interest) be a better solution to paying some bills as opposed to taking a loan from my 401k?

By: Nick

Nick — Sat, 16 May 2009 06:30:10 +0000

For the people who say investing in a 401k is a bad investment you could be right or wrong but only in one manner… What is the company match? For people who think the free money thing is a scam they are incorrect. If you put 100 dollars in a bank for a year and earn 5 percent interest ( and no one will earn that in a bank account) you will earn 5 dollars. If you contribute 100 dollars to your 401k and you company matches 100 percent you now have 200 without even considering the investment.. That’s a 100 percent return… Even if you were insanely aggressive and went all stocks even a market like 2008 you would have maybe a 40 percent loss.. You are still ahead of just putting it in the bank… And if you were smart you spread it out and lost less then 40 percent so make out even better… and if you were ultra conservative and had it all in a stable fund you have above 200 dollars.. there is really no way if you get match you can beat the ease of gaining free money.

By: Fred

Fred — Sun, 15 Jun 2008 17:03:42 +0000

I don’t want the government to say that you can’t withdrawal money from your 401(k), but it rarely is a good choice. There are so many better ways to get a quick loan.

By: Clint

Clint — Sat, 14 Jun 2008 18:53:12 +0000

Your 401k is not always the best place to put your money. If you could instead save that money and use it to start a business you have the potential for much higher returns. However, most people wont realistically do that, and for them the 401k is one of the better places to be putting your money. And, as you advised, if you’ve already been putting you money in your 401k, it’s usually a bad idea to borrow from it.