Should You Borrow From Your 401(k) Account?

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.

---

Save Money on Groceries: Part I

One universal of humanity, no matter who you are or... Read More

Understanding and Controlling Your Finances

Have you ever wondered what it would be like to... Read More

Learning the Basics of Handling Money

With prices increasing all the time, saving money can be... Read More

Do You Know What Tomorrow Will Bring?

I've been sharing the following idea with people for a... Read More

The Wonderful World Of Address Labels

Ever wonder where address labels come from? Avery® is perhaps... Read More

Basic Bank Accounts Failing the Basic Needs of Consumers

The lists of bank and savings accounts that are available... Read More

What?s New in Checking ? From Designs to Photos

Just about everyone has a checking account. Checks present easy... Read More

Money Saving Tips. Maximize Savings on Everyday Items!

Frugal living is more than a lifestyle. It's a passion.... Read More

Saving Money - The Magic 20 Percent

Saving money is not easy and is made more difficult... Read More

Car Donations and Used Car Donations

Car donations and used car donations are the way many... Read More

Take Control and Master Your Kitchen

Those who keep a watchful eye on where their money... Read More

First Checking Account ? When is it Time?

We all know that money doesn't grow on trees, but... Read More

Debt Management ? Watch Out for Bank Fees!

During the last twenty years, banks have offered a number... Read More

Planning Your Financial Future

Millions of people give a lot of thought to financial... Read More

Improve Your Professional Image Using Address Labels

One of the simplest ways to improve your professional image... Read More

Budgeting is Essential for a Single Mothers Success

Today many women are struggling with debt and it's even... Read More

Budgeting your Savings - Did You Let Your Piggy Bank Get Away?

I think most of us have at some point in... Read More

Single Mother and Learning how to Save

Saving may seem easier if you were saving for a... Read More

Check Facts and Figures

Are you a check fanatic? Don't worry, you aren't alone.... Read More

Accessing Funds You Never Knew You Had- Household Utilities and Mortgage Expense Reduction Plan

For most of us the process of getting out of... Read More

Photo Checks ? A Great Alternative in Checking

It's the little things in life that make it interesting.... Read More

Im Broke, How Can I Afford...

I'm still amazed every time someone comes to me complaining... Read More

Can You Afford Not To Look After Your Personal Finances?

Investing is a subject a lot of people don't want... Read More

How Electronic Checks Work ? Will Paper Checks Eventually Go Away?

Traditional checks probably won't disappear anytime soon, but processing checks... Read More

Dramatically Improve Your Stock Trading Success

Get Access to Realistic profitable strategies & discover the mindset... Read More

The Benefits of Banking Online

How many drawers did you have to look through to... Read More

Financial Fitness - Are You Exercising the Right Muscles to become Financially Fit?

Are your financial muscles well toned and healthy or flabby... Read More

Healthy Eating On A Budget

It is possible to eat a healthy, balanced diet without... Read More

Credit Card Debt ? Watch Your Credit Report and Your Bill

Most consumers are aware of the importance of their credit... Read More

Roth IRA Contributions - IRS Rules

Confused about whether you can contribute to a Roth IRA?... Read More

Expenses A ? What Are They And What Can We Do About Them

It is crucial as an individual who is striving for... Read More

If All Things Are Possible, Why Cant I Balance My Checkbook?

For me, the most terrible time of each month is... Read More

How To Survive The Grocery Shopping Blues

If you are the normal consumer, then you've probably experienced... Read More