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Is It Good To Borrow From Your 401K

Your points are spot on regarding why borrowing on your 401k is typically a bad idea. Most people say well you are paying interest to yourself when you take a 401k loan and while that does sound appealing it has a lot of caveats that you mentioned.

If you borrow money from your 401(k) plan, most plans have a provision that prohibits you from making additional contributions until the loan balance is repaid. Even if your plan doesn’t have this provision, it is unlikely that you can afford to make future contributions in addition to servicing the loan payment.

One feature of many 401(k) retirement plans is that you can borrow money from your own account. Regulations don't require that 401(k) plans.

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All good things come with limitations. And never is that more true than with retirement accounts. For those lucky enough to have an employer-sponsored 401K (it is rarer that you think), you are probably aware that there is a maximum 401k contribution limit that you can contribute against each year, as determined by the IRS. This limit is documented in section 402(g) of the tax code.

1. 401(k) Loans Have Borrowing Limits. In general, you can only borrow the lesser of $50,000 or one-half of your retirement plan balance. To accept the loan, you must typically agree to begin paying back the loan as soon as your next pay period.

Sep-IRA vs Solo 401K If you work as an independent contractor, meaning you get a Form 1099 each pay period instead of a W-2, you’re responsible for your own benefits, including a retirement plan. Your two main choices are a SEP-IRA or a Solo 401K. This post will help you decide which to use. Simplified Employee pension individual retirement arrangements, or SEP-IRAs allow a sole proprietor to.

If you need to borrow money – do it elsewhere, and reduce your 401k contribution. I highly recommend a ROTH IRA as you can remove the principal without penalty or tax consequence while the interest continues to grown tax deferred.

You can borrow from your 401(k) only if your plan document allows you to borrow for the specific reason you have in mind. Some 401(k) plans permit borrowing for any reason, but most permit loans only for certain specified reasons.

Good summary of borrowing from your 401K. I agree it is a funding source of last resort. I recently wrote about a company offering Debit cards to employees, allowing them to withdraw from their 401K!