The Dangers of Borrowing from Your 401k

If you are considering borrowing from 401k funds, you are taking a large risk with your retirement. A 401k loan comes with a large amount of risk associated with it. Usually there are many better options than a 401k loan. However, if you need a loan, here are some things to consider before borrowing:


The most important thing to figure out is whether your particular plan allows for 401k loans. Not every 401k plan out there allows loans against your retirement money. You have to check the fine print associated with your 401k plan to find out or call your plan administrator. Some 401k plans come with restrictions on the loans if they allow them. You might only be able to get a loan if you are facing some kind of financial hardship. Medical bills, final expenses for a loved one, taxes, saving a home from foreclosure, buying a home and other important expenses may be allowed. However, less important things might not qualify for a 401k loan. Be sure to review your terms and conditions.


With a 401k loan, you have a few things that you have to worry about. First of all, you risk losing the 401k if you do not repay the loan according to the terms. Then you retirement money is gone and you have to pay taxes on it. You will also have to pay fees and costs for the loan. Each company has their set of fees. Also, there will be interest associated with the loan and possibly a setup fee.

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