No. of Recommendations: 0

Assuming you are referring to a 401(k) plan with matching contributions, you are able to borrow
from your account IF your employer's plan specifically permits it, with repayment going back to
your account. In effect, you borrow from yourself and pay yourself back.

The downside is that you lose the compounding that occurs over time on your account principal
during the period that it is missing from your account. For example, if your account has $30k, you
borrow $15 k to be repaid over 5 years, and during that period your 401(k) investments earned
15% annually, you would lose out on that tax-deferred compounding for the $15K that you
borrowed (which would have doubled during that period had it not been touched. Likewise, future
compounding would occur only on a lesser principal balance (since you missed out on the earlier
compounding), and so on.

In short, the magic of tax deferred compounding is the prime reason that most financial planners
recommend against borrowing from your 401(k) unless absolutely necessary.>>

Just a quick note. I took out a loan from my 401K to pay off some consumer debt loan. Although I agree that taking a loan out from your 401K reduces the return, I don't believe that it reduces it all that much. I pay 9% APR on my 401K and therefore my 401K has a guaranteed 9% return for the time that I have my loan. I know that it isn't the 15% or so the stock market may produce, but a riskless (since I am paying myself) 9% return in a retirement fund is still very good, if I put the money to wise use out in the non-retirement world... Anybody have any thoughts on this???
Print the post  


UGC Disclosure Notice Regarding Credit Card Posts
Community board discussions about credit cards are not provided or commissioned by banks who may have advertising relationships with The Motley Fool. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.