Raiding the 401(k)
by Tom on May 6, 2008
in Uncategorized
The Big Picture Raiding the 401(k)
Barry has a good story about how the number of people who are borrowing from their retirement accounts is rising. It’s not a good sign about the health of the economy and not a good sign about people’s financial pictures:
With home prices falling nationwide, the loans may be a sign that cash-strapped consumers are raiding their nest eggs to stay afloat, no longer able to tap their houses for cash and up against their credit-card limits . . .
In my mind, there is never a good time to raid the 401K account, except for in retirement……
I have borrowed against my 401k 4 times and paid it back all 4 times. It’s not ’sacred’ money, it’s one of many tools.
Chris,
You’re absolutely right in that borrowing from a 401K is a tool. However, in my mind, it’s a very dangerous tool. If you end up leaving your company (voluntarily or otherwise,) many of them require the loans to be paid in full at that point. If you can’t pay it back, they treat it as a withdrawal and then you are looking at 20% in taxes and a 10% penalty. That’s a pretty steep price.
Is it a valuable financial tool? Yes, but a risky one.
Thanks for commenting. I appreciate it.