100 Words On: Why You Should Resist Borrowing from Your 401(k)

Roughly 3 in 10 people now borrow money from their 401(k) retirement plans. Generally, you can borrow half your account balance — up to $50,000 — for as long as five years. True, it’s among the cheapest loans available because the interest rate is typically the prime rate plus one percent, and interest is paid to yourself. Even so, the risks are steep; not the least of which is the loss of potential earnings that money could have been accruing on a tax-deferred basis.

The bottom line: There are reasons why raiding your 401(k) fund may make sense, but there are many more why it doesn’t.

Photo Credit: Urban_Data

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