Comments on: The 401k Loan: How to Borrow Money From Your Retirement Plan and What You Need to Know

By: Dan

Dan — Sat, 28 Aug 2010 14:09:25 +0000

With regard to opportunity cost, you are assuming that there WILL be a market return on your retirement investment. For those of us who have just experienced the lost decade, there was no return over a 10 year period. We would have faired equally well had we stuffed our mattress with retirement savings (except for the tax deferred advantage – but with no growth, this was also negated).

By: Hank

Hank — Thu, 17 Jun 2010 12:50:42 +0000

I think that the opportunity cost is the most important factor or drawback. While the loan may be cheap comparatively to other options, it will quickly get expensive with respect to the loss of income that that loan amount will not produce in interest, dividends, or returns while the loan is outstanding. And, then that interest will not compound. The benefits of compounding interest are lost forever on that opportunity cost.

By: Sharon

Sharon — Wed, 21 Apr 2010 16:32:13 +0000

Wow, Great information. Thanks so much

By: Hasham

Hasham — Thu, 15 Apr 2010 02:03:49 +0000

This is a good comprehensive article. The most distinct advantage of borrowing from 401k plans is that there is no application form to fill out, no credit check, no visit to the bank, etc thus making 401k loans a very easy process. The IRS allows you to borrow a maximum of $50,000 or 50% of your funds, whichever is lesser. The amount you borrow must be paid back in 5 years. Also note that you are allowed to borrow more if you are planning to buy a house and use your 401k funds as down payment. The interest rate charged is the normal bank prime rate + 1-2%. Also note that in 401k loans, you are the lender and the borrower. Thus, the interest payments that you are making are being added to your original 401k balance, thus helping you grow your funds.

By: Patricia Lillis

Patricia Lillis — Sat, 27 Feb 2010 23:09:22 +0000

I took out two 401k Loanseach for $10,000 after losing my job. One in 2004 & one in 2005. I was paying the interest on both to avoid defaulting but was not recalled to my job until the Loans were both due. I defaulted.I now owe the taxes. I noticed the balance on both are now more than I borrowed. Can you tell me why?

By: JoeTaxpayer

JoeTaxpayer — Wed, 17 Feb 2010 14:21:04 +0000

I’m sure there are examples of 401(k) loans gone bad as well as those that saved the user money.
If someone is disciplined and has a plan to pay their cards off over a 3-4 year period, by using the 401 loan and making extra deposits to their 401(k) or IRA with the money saved (i.e. the difference in payments required) they will be far better off. Remember, when your discussing borrowing and slipping after tax money back into a pretax account, the credit card interest isn’t deductible and it was paid off with post tax money.

By: david m

david m — Wed, 17 Feb 2010 09:58:55 +0000

Jeremy,

You should be very proud of yourself, the information on your website is the most accurate I have seen anywhere on the web.

This entry and the Social Security entry were very detailed and very accurate. I feel that you do a great job of not letting you bias show in your posts – something most financial bloggers do not even try to do – IMHO.

Keep up the great work.

David

P.S. I say NEVER take a loan against your 401K and more importantly, when you leave a job, ROLL YOUR 401K over.