Borrowing From Your 401k
Let’s say you aren’t in the majority. You are saving and spending wisely, having tucked away a tidy sum in your 401k with quite a few years left until retirement. You’re quite enamored with the balance, and decide it wouldn’t hurt to borrow against it to buy a few items, or take that dream vacation, or put a down payment on a home.
This move couldn’t be more wrong. Granted, when you borrow from a 401k, you pay yourself back with interest over a set period of time, but it’s with after-tax dollars. Plus, many companies won’t allow you to contribute to the plan until the loan is paid off; and you lose out on possible compounded growth on your investments.
Of course, this move is much better than simply withdrawing 401k money before age 59.5. Do that and you can expect a big, fat income tax bill from the IRS the following year.