You’re told never to touch your 401(k) but sometimes you may be left without a choice. InvestigateTV Consumer Investigator RachelDePompa talks to the VACreditUnion about the pros and cons of a 401(k) loan.
, said it’s always better to consider a loan over actually withdrawing from your 401.
“Most employers will let you borrow up to $50,000 dollars or 50%, whichever is more of your 401, you would have around five years to pay that back,” Dale explained. “Now, the sooner you can pay that back, the better off you’re going to be, because the money that you pull from your 401 is obviously not going to be invested at that point.”
Dale explained the interest paid on 401 loan installments is reinvested into the original account, which means that the plan holder is, in effect, paying themselves interest. However, she said the amount borrowed from the plan will not be invested during the term of the loan, meaning the plan participant will miss out on any market gains or losses during the loan term.
“You got to weigh all of the pros and cons about it. But, you know, if you’re in a dire situation, or you’re needing that college tuition or things like that and you have no other place to go, that might be a better avenue versus a credit card or a personal loan,” Dale said.
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