Need Money|Where Can You Get It
Is Borrowing From 401K The Best Way?
When you need money to pay for today’s purchases, you want to make sure it’s the best way possible; which means you want it to be easy and cost effective. Borrowing from your 401k plan may be easy and it may be cost effective, but in the long run it may not be the best way.
Why Did You Start Your 401k Account?
You should never forget why you started investing into a 401k account. The reason you most likely started your 401k account was for your future, your retirement. Therefore, borrowing from that long-term investment account to pay for something today is counterproductive. Every time you borrow from your retirement accounts you are decreasing the amount you will have at retirement; why would you want to do that?
You get your working years to save up enough money to last throughout your retirement years; don’t waste those years. Find another source of funds to borrow from or better yet, don’t make the purchase. If you have to borrow to make a purchase, maybe you cannot afford the purchase and need to delay it.
The Ease Of Borrowing From 401k Account|It’s Too Easy
Borrowing from your 401k account is a nice 401k benefit; few other investments allow you to borrow against them.
Borrowing from a 401k plan can be through a general loan provision or a hardship loan provision, depending upon how your 401k plan is set up. Some 401k plans do not offer either type of loan; you will have to ask your human resource department if your plan is set up to allow for loans.
The Cost Of Borrowing From Your 401k Account
One of the reasons 401k loans are considered by some to be a 401k benefit is because the interest rates are usually low and the pay back period is generally fair.
When the 401k plan is set up the payback period is established. The interest rates will be determined by the market at the time of your loan. You will have to ask the human resource department at work what the interest rates and payback period is for your 401k plan.
Can You Borrow From An Individual Retirement Account?
No, you cannot borrow from an Individual Retirement Account or an annuity account. The ability to borrow from your investment is a provision only built into a 401k plan.
Even though an annuity and an IRA are both retirement investment vehicles, you rules specifically state that you cannot take any type of loan from either of them.