Over the years, 401 (k) plan participants have approached me on behalf of many of the advantages and disadvantages of taking a loan from their 401 (k). Often, employees who approached me was the conclusion that the loan from their 401 (k) account is a good idea. After all, there is usually an urgent need for the money - as with the borrowed money to pay high interest credit card. Part of his conclusion is that the interest on the loanBank account - no credit card or company) will be returned to their 401 (k
Even if the thought of refund interest is pretty long and hard before making a credit to your account. In my conversations with my colleagues, I stressed that they consider before borrowing from their 401 (k) account:
1) Even if you paid with interest, your money is not invested in the stock market.
You canHappiness and manage new for most of the loans payable in all the markets again, but this is unlikely. Just to each table on market performance, and the majority of periods of 5 years and 10 for most years are extended, the stock markets have grown in value. I am firmly convinced that your stay invested in the market as long as possible in order to benefit from all this stock market rising. In a nutshell, I think the longer you are invested in equity markets, the better the its performance. Taking a loan reduces the amount of money you have to work in their 401 k) Amendment (.'s Missing is a stock market boom, while borrowing a substantial amount of your 401k piggy back your retirement date for the next few years.
2) The payments are required to repay your loan to reduce your pay to take home with them.
Although I have recommended to all employees, of course, normal salary deductions that would have occurred after taking a loan from their 401 (> K), could in many, really take the budget for the lower amount to take home.
Employees look to do, for example, loans from their 401 (k) account to pay for many a credit card statement annoying. After all, the credit card company charge interest of 15% or higher. To borrow from their 401 (k) account you can eliminate credit card debt and then repay the loan through regular payroll deductions.
This approach sounds good in theory. In practice, however,Reality creeps) a. Many of my colleagues, the K borrowed from their 401 (credit card account to pay bills regularly would approach me after a few months. I would ask these people often take a loan from their 401 (k) plan or ask if the current 401 (k) loans could reduce their prints restored as their salary.
What happened? Why are the piggy bank so soon after paying their pesky credit card debt?Often these people have their appetite for credit before borrowing from their 401 k) Amendment (. Pay their credit cards simply result allows many of them credit, debit card more. So, these employees will be needed to face the double blow. Not only were once again to pay by credit card, their smaller salaries, because they were already paying a 401 (k) loan.
I highly recommend watching all below) to (k loan to pay a 401credit card debt by looking at their use of credit cards first check.
3) unemployment insurance
What happens if a loan and you lose your job for whatever reason? The short answer is that you have a minimum of 4-8 weeks to pay the full balance. If you do not pay for the balance of the loan in the amount of the loan will be treated as a distribution from the plan. This means that you owe taxes on the amount you failed to returnYour 401 (k) plan for change. Users under 59 years and a half will be assessed a 10% tax penalty in addition to the tax liability on account of the balance of unpaid loans.
4) annuls the tax benefits of your original post
A loan from a), 401 (k plan is essentially borrowing against the tax dollars from your account and then repay the loan with after tax money. And even if you get the advantage with their interest in denying the reality advantage of tax deferralbecause after the loan with tax money. Also, if the price of the loan, which is taxed again to withdraw the money.
May be valid reasons) to rent account must be made by (401 k, but I recommend anyone who thinks that a step to understand the consequences of their actions - even if the money goes to pay a high interest credit card or in the direction the deposit of a house. do the following:
1) talk to someone in yourHuman Resources to help you understand the costs - including the reduction in take home pay.
2) If the use of funds to pay off high interest credit card, please take a look at your use of the value of our credit and how to use to eliminate your dependence on this easy-related debt.
3) Budget for low pay. This is a very important aspect, especially if the proceeds of the loan for a down payment for a house to use.
In addition,always argue, as the occasion to recommend to check that my employees see or eliminate other expenses such as unused gym memberships, rarely watched subscription TV channels and overly expensive cell phone bills first. Even if you plan to still choose to borrow from 401 (k), reducing or eliminating other discretionary spending will help compensate for the lower take home pay will be.
Although I rarely advise anyone to borrow from their 401kModified with these first steps should help to feel that your salary, better after you take out a loan to borrow.
Copyright © 2009 by Jeff Brownlee
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