If you are in the position of being bitten by the the economic "crunch," you are probably in the position of trying to find possible revenue streams to help you get through these times.
If you have a 401k retirement, investment portfolio you can indeed borrow against the principal. Although you can borrow from a 401k, there are many of reasons why you should only do so as a last resort.
401k plans are a great benefit offered by companies. Employees will get the perk of being able to invest a portion of their pre-tax income into a retirement portfolio. Taxes will not need to be paid on that portion of the deferred income until withdrawal and additionally, by deferring a portion of one's income and employee may actually succeed in lowering their tax bracket for the year.
Advantages of borrowing against your 401k
The benefits of borrowing against your 401k include:
- Being able to borrow up to $50,000 or 50% of your 401k total value (whatever is the smaller value)
- Loans are typically approved quickly
- The typical process of securing a loan does not apply
- The interest rate is low
- Money commonly needs to be paid back in 5 years or over 10 years if the money is for a house down payment
- 10% early penalty fees can be avoided by borrowing from a 401k investment
Disadvantages of borrowing against your 401k
The cons of borrowing against your 401k plan include:
- Your retirement fund will not flourish as rapidly as the 401k plan will stop growing until your loan is paid back
- You will experience a smaller paycheck as you must repay the loan through payroll deductions
- If you lose your job, the entire amount of the loan amount must be repaid in 60 days are you will get a substantial tax bill
Before tapping into your 401k account as a loan, make sure you can handle the terms of accepting this loan. If you know your job is stable and you are willing to risk a smaller paycheck and reduced investment growth, borrowing against your 401k may be a great strategy.
