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Lets Talk 401k Tell a Friend

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One solution that many people have when it comes to not only credit, but other financial problems is when they borrow from their 401K. Now, this may seem like a great way to get your hands on the money you need right away with no problems. Furthermore, this is true you will get the money right away, and all you have to do is go the bank, and in a matter of minutes you’ll be all set. However, the one thing you must remember is that; yes, there are penalties, and yes you will get taxed, and the more you take out, the more you will get taxed.

The simple rule that applies to most 401K’s is that you will be taxed if you touch it before a certain age; usually 60-65. It’s a retirement fund, a nest egg of sorts, that’s meant to be built up over time, and thus if you keep borrowing from it repeatedly, you will be taxed repeatedly. Now, some banks do allow a grace period, where you have the opportunity to put the money back; in most cases it’s two months. Still, if you miss that grace period, or put it back at a later date, you will still be taxed.

So, the question that remains is; when is it okay to borrow from my 401K? Most experts will say never, or only with serious emergencies. Yet, I take a different stance on the issue of borrowing from your 401K. First, be realistic about it, before you borrow the money. Find out what the grace period is, and if you can indeed meet the deadline for that grace period, based on the amount of money you need to take out. Also, if you need to borrow to pay off your credit card, to avoid bad credit; by all means go ahead and do it!!!! Borrowing from your 401K isn’t supposed to be the option for paying off your credit card, but screwing up your credit can be and usually is far worse.

The reality when it comes to borrowing from your 401K is that it’s not recommended by most, but it’s also not the end of the world when it comes to your finances. Just make sure that before you borrow, that you carefully weigh out your options, find out the grace period to put the money back, and go accordingly from there.

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