We work hard to contribute money to a 401(k) in the hopes of using that money for a nice retirement. But life happens and you may find yourself in the position of asking—should you take out a loan against your 401(k) to buy a home or pay down debt?
As long as you can handle the payments, taking out a loan against your 401(k) is usually a less expensive option than a straight withdrawal where you may have to pay income taxes and a 10% penalty; however, there are pitfalls that you must take into account.
Most plans will give you only five years to repay the loan.
If you borrow a large amount the payment could be substantial. If you fail to make the payments or leave your company you may be required to pay back the outstanding balance within 60 days or be forced to take it as a hardship withdrawal. This means you’ll be hit with taxes and penalties on the amount you still owe.
Get help to make the right decision.
Before you decide if a 401(k) loan is the right choice for you just make sure you understand all of the consequences. Financial Advisors with BECU Investment Services can help you make a good decision for your financial situation. Schedule a free consultation to get started. Visit www.becu.org/investments.