How to view 401k Loans

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By didimay
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Some 401k plans have a loan provision, which allows the employees to take out a loan; this may or may not be a good move. If you are going to take money out of your 401k, it should be for a very good reason.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

Your own 401k Plan documentation
Internet

Step 1

Loss of revenue

While it’s true that borrowing from your 401k is better than cashing it out; Be aware that in most cases; loosing your job before the loan is paid off may cause it to be treated as a distribution subjecting it to the 10% penalty if you are under age 59 ½.
Step 2

Taking money out of your 401K before retirement may disrupt the dollar cost averaging; possibly causing a lost of long-term return. In today’s market it may mean less money for retirement.
Step 3

Why not use other avenues for income? For example, sell some items in storage, organize a garage sale, work a second job or sell things on the internet. The idea is to raise capital as quickly and painlessly as possible.
Step 4

Save for the future

Knowing the 401k loan and withdrawal rules can help you to make a wise decision. Keep in mind that a loan is paid back with after tax money; and in many cases, the interest paid on the loan is greater than the expected rate of earnings. If you are experiencing financial hardship, and feel there is no other choice, check with your plan administrator to see if your 401k plan is healthy enough for a loan.

Comments

JPF888 said

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on 12/23/2008 Timely information for 2008. Especially now with the economic crisis many of us have lost 40 - 50% of our 401(k) stock values. If we cash out now, we will never make up those loses. Think about it hard before you decide to go that route:)