Sometimes you find yourself needing some money. Unexpected events such as a car breakdown can put a damper on your budget no matter how well you plan. When you need money and need it quick, you can look into borrowing money from your 401k. Typically, when someone contributes to a 401k plan, they do not expect to take any money out of it until it has grown, maturing after reaching the age of 59 ½.
But life does not always go the way we hope, and sometimes we need to delve into whatever source of Money we can find, and sometimes that means taking Money from our 401k. This has been thought of, which is why most 401k plans will have that type of loan available.
While taking a loan from your 401k can often make the difference between paying off a bill and falling further into debt, there are risks involved, especially in lost opportunity costs. If you do not handle the loan carefully, you can not only run the risk of having to pay much more down the road, but you also run the risk of ruining your 401k. And a 401k loan can and will severely affect your future balance as the Money borrowed is not compounding within the 401k.
Not all 401k plans are the same, so there is no universal method for getting money out of them. You need to check into the specific plan and find out what restrictions apply when borrowing Money from your 401k. Most plans will require that you borrow a minimum amount of Money, usually anywhere from five hundred to a thousand dollars. They often will also have a maximum amount you can borrow, usually around fifty thousand dollars or a percentage of what is in the account, for a brief article on the pros and cons of a 401k loan visit, BankRate. However, every plan is different, so you will need to look and see whether this applies to you or not.
While taking money from your 401k plan may be a lifesaver, you may not be able to. While most plans are different, there are usually similarities in requirements. Most plans will not let you borrow money from them unless you can meet the requirements they put in place. If you do not meet these requirements, they will not lend you the money. So, this is another reason why you should look over your plan carefully and read the fine print so that you are properly educated.
Like most loans, a loan from your 401k will have a set repayment plan that you will have to adhere to. This can be anywhere from 5 for a personal loan and up to 15 years for a real estate loan. So, depending on what type of loan you took out and what type of plan you are on, you need to be aware of these restrictions. The nice thing about borrowing money from your 401k is that, while you, of course, have to pay it back, the interest rates are fairly low and are put back into your 401k, though at a much lower rate than what it would have earned otherwise.
While taking a loan from your 401k is not an ideal option, there are some additional fees that you may have to pay. Such as yearly fees or fees if you miss a payment. If your company has someone who manages 401k plans, you should talk to them if you have any questions. And if you separate from that employer, you have until the next filing date of your federal taxes. This is a recent change from the old 60-days limit, and you can get more information here, Credit Karma.
For more information on the lost opportunity costs and what a 401k loan can cost, get 401k Retirement Loans. And if you need assistance with these and other loans, feel free to reach out to me directly if you are in or near the Nashville Metro area. For those outside Tennessee or who feel better with someone closer, find a qualified fee-only Registered Financial Consultant near you.
