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:

  1. You lose the benefit of tax-deferred compounding on the money you borrow.
  2. You may have to reduce or eliminate contributions during the loan term – forfeiting employer matches and future earnings on those contributions.
  3. If you lose your job, you typically have only between 30 and 90 days to repay the outstanding balance.
  4. 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.