If you have a 401(k) account, it can be very tempting to borrow from your account especially when your balance is very high and a loan could easily pay off existing debt, fund a home purchase, or pay for college tuition. Before you make the decision to borrow money, there are several things you must keep in mind to avoid risking your funds.
Borrowing from a 401(k) can seem like a risk free loan, especially since you repay yourself with interest. However, there are costs involved that are not readily apparent to the borrower who elects to take out a loan:
1. On the borrowed funds, you lose all tax-favored investment returns. In other words, you are effectively charged extra interest for the loaned funds.
2. Any interest you pay, even though you are paying yourself, is not deductible, but will be taxable to you when the plan pays you back via future distributions.
3. You may have to pay a fee to take out the loan. Add this expense to the loan costs to see if a loan is still cost effective.
4. If you leave your place of employment before paying off your loan, you will be required to pay the loan back in its entirety immediately. If you do not have the funds available to pay back the loan right away, you will then be subject to IRS taxes and penalties which can eat up as much as 30% or more of your borrowed funds depending on your tax bracket. The IRS treats all loans that are not paid back as disbursements.
Yes, a 401(k) loan can help fund life's emergencies, but the hidden costs and fees involved as well as potential taxes and penalties can quickly turn a good thing into a bad move.
Matthew Keegan is the owner of a successful article writing, web design, and marketing business based in North Carolina, USA. He manages several sites including the Corporate Flight Attendant Community and the Aviation Employment Board. Please visit The Article Writer to review selections from his portfolio.
Lincoln Stretch rentals Alsip ..If you're like most people, your personal financial records are... Read More
Traditional checks probably won't disappear anytime soon, but processing checks... Read More
Millions of people have a checking account and many people... Read More
It is estimated that we, as consumers, waste an average... Read More
How many drawers did you have to look through to... Read More
Predatory lending exists in the mortgage industry. It's typically when... Read More
Our global society has had a wake up call in... Read More
If you are the normal consumer, then you've probably experienced... Read More
As the saying goes: "Buyer Beware". If you see ads... Read More
Confused about whether you can contribute to a Roth IRA?... Read More
For months, we were trigger-swipe happy, putting our groceries, clothes,... Read More
Recently, many of these loyalty rewards programs have come to... Read More
Good money management needn't be difficult. In fact, there a... Read More
This investment retirement account (IRA) is useful to you as... Read More
Women are charged more for dry cleaning services. Don't fume,... Read More
1. Don't focus on your finances.The reason most people get... Read More
It is widely written that you need 75% of your... Read More
Reducing the clothing budget was a serious challenge for me.... Read More
Gas prices have soared to unimaginable heights of late. Since... Read More
Did you have a piggy bank when you were a... Read More
Recent findings from the Educational Policy Institute indicated that the... Read More
As a parent you are bound to face a few... Read More
Despite how easy it is to balance a checkbook, very... Read More
Are you interested in saving money off your grocery bills?... Read More
The cries are heard from the distance, "I need help... Read More
Western Springs shuttle limo ..Christians are called to be good stewards of God's resources.... Read More
One of the biggest challenges facing black RELATIONSHIPS today are... Read More
Australians, in general, constitute some of the worst savers in... Read More
Recent security breaches at several credit card companies continue to... Read More
With the advent of the internet and especially auction services... Read More
The gas that we fill our tanks with every week... Read More
It is possible to eat a healthy, balanced diet without... Read More
Identity theft is a serious crime that continues to grow.... Read More
Gas prices have soared to unimaginable heights of late. Since... Read More
Ben Stein has a book called How to Ruin Your... Read More
Are you having problems with debt? Are you afraid to... Read More
The lists of bank and savings accounts that are available... Read More
Ever wonder where address labels come from? Avery? is perhaps... Read More
Does it feel like you have to be Sherlock Holmes... Read More
Address labels are many things to many different people. If... Read More
Vacations Made Easy: Buying a Florida Investment PropertyA relaxing beach... Read More
Everyone needs to maintain their lives. What I mean by... Read More
Financial freedom cannot be achieved without budgeting. Budgeting involves tracking... Read More
Your food budget is the most flexible area of your... Read More
Despite how easy it is to balance a checkbook, very... Read More
Each of us knows how to spend money, but do... Read More
When you received an energy (heating) bill last winter, were... Read More
An avid cyclist and bike racing fan, I sit transfixed... Read More
In this age of information, keeping track of your finances... Read More
It is estimated that we, as consumers, waste an average... Read More
Personal Finance |