Use Caution Before Borrowing Against Your 401k

Friday, December 05, 2008

Some employers offer the option of borrowing against your 401k plan. While for some individuals this may be a good option for a loan. However, we are encouraging everyone to seek professional financial advice before you do this. There are some benefits and some downfalls to making this decision on your own; a professional financial advisor can make sure that you are properly informed.
One thing to remember is that if you are terminated or you quit working with that employer, the loan has to be paid back, in full, right away. If you cannot repay the loan, it will be considered defaulted, and you will be taxed on the principal balance. There may also be a penalty for early withdrawal depending upon your age. This has become an issue for multiple members now and we strongly encourage anyone who may end up defaulting on their loan to seek financial advice to assist them further through this process.