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Personal Finances / Credit Cards and Consumer Debt
|Subject: Borrowing from your 401(k)||Date: 8/19/2013 12:52 PM|
|Author: WendyBG||Number: 307196 of 308365|
One Dip Into a 401(k) Often Leads to Another
By TARA SIEGEL BERNARD
New York Times: August 16, 2013
Some people can’t seem to stop at just one.
After workers borrow money from their 401(k) retirement account, they may find that it becomes easier to come back for another loan — and perhaps even another. And yet another one after that.
Fidelity, which houses the 401(k) plans of more than 12 million workers, recently studied the behavior of these so-called serial borrowers. It found that this sort of repeat borrowing can put a serious dent in long-term savings, especially if the employees cannot continue to save as much while they pay the loan back. ...
The government does not take a 10 percent penalty on the amount borrowed, as it does when a person cashes out of a 401(k) before retirement. ...
... Serial borrowing can permanently impair your long-term savings. The money is no longer invested, so you may lose investment earnings. (When you borrow from a 401(k), the money is taken from your account, without penalty, and you pay yourself back with interest, typically through payroll deductions.) ...You’re typically required to pay the loan back in full within about 60 days of leaving an employer.... [end quote]
Does it make sense to borrow from a 401(k)? That depends upon the circumstances.
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