Many 401(k) plans allow participants to borrow as much as 50% of their vested balance, up to $50,000. These loans are easy to get and interest rates are low, yet they should be considered only as last resorts. Here’s why:
- You lose the benefit of tax-deferred compounding on the money you borrow.
- You may have to reduce or eliminate contributions during the loan term – forfeiting employer matches and future earnings on those contributions.
- If you lose your job, you typically have only between 30 and 90 days to repay the outstanding balance.
- Your outstanding balance is taxed as a distribution (and 1 0% penalty applies if you are under 59½) if you don’t fulfill repayment terms.
Other rules and conditions apply. Contact us for more details.