Borrowing money from a 401K retirement plan is something no Financial Adviser will ever tell you to do. In fact, to some Financial Adviser’s touching this money is a crime in itself! Your 401K plan is your nest egg for the future, and without it, there will be no way to enjoy a comfortable retirement. It is easy to see why it is not advised to borrow from the plan, however, there are several reasons in which it is beneficial to borrow from your 401K retirement plan.
Should an unexpected emergency arise, borrowing from a 401K plan could be beneficial, if the money can be repaid within a short period of time. Up to $50,000, or 5% of the amount in your plan, may be withdrawn. It must be repaid within a period of less than 5 years. While interest fees are associated with borrowing from the plan, not only are these rates considerably lower than the competition, all of the money paid in the interest fees goes right back into the 401K plan for you ,so it is a win-win situation to solve emergency financial situations.
It is quick and easy to borrow from a 401K plan, with no credit checks required, and no pulling of your credit report. You can also use a 401K money instead of bouncing checks and dealing with overdraft charges and negative credit information, There’s also no monthly fees associated with borrowing from your 401K. Most often there is no application fee for borrowing from your plan, and in the instances where there is an application fee, it is a relatively small fee.
There are no tax penalties imposed on anyone for withdrawing money from your 401K account. This is extremely beneficial to many 401K policy holders.
If you do decide that you need to borrow money from your 401K plan, keep it for an emergency only. Ensure that you take out only an amount you feel comfortable repaying so not to ruin your savings for the future. Borrowing from your 401K could be beneficial as long as it is done responsibly.
There are benefits of borrowing from your 401K plan, but there are also negative impacts as well. Fully understand both before making the decision to borrow from your 401K plan. Making a well informed decision will ensure that you receive the benefits offered instead of getting yourself into financial troubles.