Borrowing against your Future

401kBad luck, unexpected emergency, job loss or lack of a budget cause many American’s to borrow against their 401k.  As many as one in three have taken a loan against their retirement as reported in USA Today’s story “When-if ever-to borrow from your 401(k)”.

Before you rob from your future to pay the present, you need to look at why you are choosing this option.  A recent study by TIAA-CREF reveals almost half of the borrowing is to pay off debt.  If this is why you are considering a 401k loan you need to look at all your options. Bankruptcy is one of the options to consider.

The first question you need to ask yourself is “if it’s a good idea to spend this money that you are borrowing.”  Is it poor budgeting or a true emergency?

Remember a 401k loan is not free, just because you are paying yourself back.  You are missing out on the gains that money would have earned while in your 401k and if you leave your job you could be required to repay the loan in a very short time or be penalized for an early withdrawal.

You should consider all your options before borrowing against your 401(k).

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