Borrow From 401k

Frequently Asked Questions

1. QUESTION:
   Borrow from 401k to pay high interest student loans?
   I have a 401k with ,500.00 in it. Two of my student loans (together it’s ,048) are at 9.5% interest rates (ouch!)

   Should I borrow from my 401k to pay those off? Then amp up my contribution rate to pay it back? (I currently contribute 8% of my salary)

   Or is this a really, really stupid idea? I just hate getting hosed on these loans!

   • ANSWER:
     Stacia Z is totally correct. On top of this, any amount that you borrow on your 401k is not accruing its normal interest. (most 401k’s accrue 10.9% tax free)… not to mention that you’ll be missing out on the compounding interest of the interest accruing on that interest. It’s exponential.

     Your student loan is tax deductible which means that depending on your tax bracket, you’re really only paying like 6-7% while your 401k is increasing by 10.9%.

     You’d be better off refinancing or taking out a home equity loan which is also tax deductible to lower your payments and the cost of your student loan. rates are currently around 6.5% and after taxes, more like 4%.

     With your balances being as low as they are, you should investigate applying for a low interest credit card which as an introductory rate of 0-3% for up to a year and transfer to that. Then get aggressive and pay it down… when the year is up, do it again.

     Bottom line, don’t ruin the long term just to make the short term easier. I could go into the numbers, but just know that every day your money isn’t earning interest for you is three time more painful than the high payment you are making on student loans.

2. QUESTION:
   Should I borrow from 401k To pay off my debts?
   Should I borrow from my 401k to pay off my debts(credit cards) I am in mid 30s and I have around 20k in Debts and I am paying a high interests.

   • ANSWER:
     What kind of debts? I’ve been out of benefits for about 12 years now, but there were restrictions on loans from 401(k). To forestall foreclosure or eviction, to pay unreimbursed medical bills…couple more but if you’re talking about credit card debt, things would have to have changed for that to be an option.

     At your age, it wouldn’t be too bad. You have a long time to pay yourself back, as long as you remain employed. Your payments will be debited from your paycheck so you can’t cheat yourself. Talk to you HR rep and see if it’s even possible.

     Figure out what you need to do to pay off the credit cards without it. Line up all the balances, rates and minimum payments. Payoff the little ones first, then apply that payment to the next one up, etc. Or you can start off paying the one with the highest rate first, and work your way down. It’s really hard to do for sure, but if you make a plan and stick to it you might be able to do it without a loan. How about an additional part time job, with the entire salary going to credit card debt? You could call the creditors and ask for a better rate. Sometimes it actually works and they’ll give you a better rate, especially if you’ve been paying in a timely manner. That’s really critical…all payments on time to protect your credit.

     Good luck. It’s really hard to do, but I did it, and I figure if I can do it pretty much anyone can.

3. QUESTION:
   Should I borrow from my 401k to pay credit card bills?
   In a tough financial position. Have nearly 13,000 in credit card debt. Some of the percentages–29% interest, 28%. I can borrow from 401k and rapay at lower interest, or is it better to take from my savings, and have no cushion or emergency fund. HELP

   • ANSWER:
     Borrowing from your 401k is like stealing from your retirement.

     Bare that in mind.

     Yes, you will be paying that money back at lower interest than your current credit card debt, but you will lose precious time that your 401k would be earning interest on that money, and that can never be made up.

     Here’s another reason why it’s a bad idea: Contrary to what we hear in the news on a daily basis, credit card companies do not want to charge you into oblivion with high interest rates. You can’t get blood from a stone, and banks know that there is a point at which you can never pay them back and may even declare bankruptcy, which means they never see the money you owed them.

     You can make it a win-win for you and the credit card company, but it will take some effort on your end.

     First, call them up and plead your case that you simply cannot keep up with the minimum payments ESPECIALLY while you are accruing so much in interest finance charges. Be honest with them and tell them that you want to make good on your debt, but they need to work with you too. You should be able to get them to lower your rate to at least 15%, but try for under 10% or 0% for a limited time, ex: Can you knock the rate down to 8% for 12 months so I can get a jump on this? Or maybe stop the interest clock for 6 months? Alternatively, you may be able to get them to forgive a portion of the total amount.

     The important thing then is to STOP USING the credit card and PAY DOWN your balance. Otherwise, you’ll only be POSTPONING THE PAIN.

     I’ve been through this myself, though it was only a little over 7k in credit card, but I was able to pay off that plus 2 car loans ahead of schedule once I got fed up with all the interest payments and became determined to turn my life around. If you’re interested, you can read about it here:

     http://onlinemoneyfinance.blogspot.com/2007/12/7-steps-to-getting-out-of-debt.html

     I talk about some of the bigger-picture things I did to change my life style and conquer my debt. ,000 is a lot, but it’s not insurmountable and you can do it without stealing from your future- hang in there!

     George.
     -=-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-=-=-

     http://onlinemoneyfinance.blogspot.com

4. QUESTION:
   Can I borrow from my 401k to help pay off debt and if so how do I do this?
   In over our heads in debt and need money fast. Can I borrow against my husbands 401k from his work to help pay this debt..I dont know what else to do. We are in a Chapter 13 so getting a regular conventional loan to help us out is not an option? How do I do this if we can do it?

   • ANSWER:
     You can, but I wouldn’t reccomend doing that. Borrowing from the 401(k) is like using a credit card that charges 40% interest. It doesn’t make financial sense.

     When borrowing from the 401(k), you will pay a 10% federal tax penalty. Plus you will have to pay them back over a 5 year period. Should your husband leave the company, the company may ask for all the money that was borrowed back thus putting you in more of a finacial mess, and on top of that, you will pay ordinary income tax. When you do pay them back, you are paying them back with after tax dollars. When your husband retires, and starts to withdraw at 59.5, he’s going to get taxed again!

     Put 00 in the bank for emergencies only.

     If I were you, you and your husband need to get on a budget. Pay the rent/mortgage, food, bills, first. List your bills from smallest to largest, then pay the minimums on all your bills except for the smallest debt. Whatever you have leftover, goes to the smallest debt. When you pay off the smallest debt, the pay the next smallest debt and so on. Cut up your credit cards and stop going to restaurants and eat at home, and pay everything in cash!

     Pick up Dave Ramsey’s book The Total Money Makeover. It help me and I’m sure it will help you.

     But never, ever borrow from your 401(k)! It makes no financial sense whatsoever!
     Good Luck!

5. QUESTION:
   If you borrow from your 401k how does it show up on tax return?
   I know it’s horrible to borrow from your 401k, but if it is necessary how does it show up on your tax return? Not withdrawing, but borrowing..
   Thank you!
   or does it show up, I guess I am saying.

   • ANSWER:
     It doesn’t show up unless you fail to pay it back. At that point, it’s a distribution and it’s income. The biggest risk, I feel, with a 401K loan is that if you lose your job, you have a short period of time to pay the loan back before it counts as a distribution.

6. QUESTION:
   Should I borrow from 401K to buy property?
   Should I borrow and pay back 401K rather than bank? Is market going to crumble before i retire any ways? We are in our mid 40′s. Confused on what the smartest decision is. Use the money now that and before the government takes it from us or just sit on it and hope it is still available in 20 years. Please advise, thank you

   • ANSWER:
     The only time you can take a loan on a 401K is if you are still with the employer that the 401K is through and they approve the reason for the loan. While you have the loan, you will not be allowed to contribute further to the 401K which means you will miss any company matches. In addition, if you live the employer for any reason, you will owe the loan back within 60 days. If this is not done, it’s an automatic withdrawal and you will owe 10% penalty + standard income tax.

     If the 401K is not with a current employer, you cannot take a loan on it. You can also not take a loan on a IRA. But you can transfer that money to the IRA and take 000 out (no penalty but standard income tax applies), IF this is a first home and taking the money will reduce the cost by either getting you a much better interest rate, eliminating PMI, or some other major financial impact.

     Or you can withdraw the money from the IRA and incur 10% penalty plus standard income tax.

     Smartest decision is use retirment investments for retirement (if needed.)
     Use other funds to finance non-retirement investments.

7. QUESTION:
   Is it a smart idea to cash out my 401k or should I borrow from it?
   I am quitting my job because my boss hates me. I am going to take about a month off and fine a job. I need money to hold me off during that transition. Should I borrow from my 401k or cash it out? And if the answer is borrow, can I do that after I quit?

   • ANSWER:
     A 401k is long term investment for retirement. It is always a bad idea to cash out a 401k. Not only do you have to pay income taxes on the withdrawl, but you have to pay a 10% early withdrawl penalty. In other words, they take about 30%.

     Since you plan on quitting, you can’t borrow. At termination of employment, all loans must be paid in full or they are treated as a disbursement.

     Look for a new job. Then turn in your notice. Never burn bridges. You might need a job reference. When you get your new job, rollover that 401k into an IRA. When you get into your 60s, you’ll be very glad you have that money stashed away.

8. QUESTION:
   Should I borrow from my 401k to pay down credit card debt?
   I am 25 and am thinking of borrowing from my 401k to payoff my credit cards which are many months behind. There is about 00 in there and my debt is about 00. Also I am thinking of changing jobs soon and I know they will either send you a check for your balance less early withdrawal penalties or let you roll it over. If i was to change jobs would paying the penalties be a better decision than to continue to let my debts go unpaid. Thank you for time and thoughts.

   • ANSWER:
     There are big penalties for cashing out a 401K. How many months is “many” months?

     Do whatever you can to prevent the cards from being charged-off…this happens at the 5 – 6 most past due mark….A charge off really damages your credit and when it happens the damage is done and there’s no undoing it…it will stay for 7 years on your credit report….even if you pay the debt back in full. If your cards have not yet charged off…..and cashing out the 401K would help to prevent charge-offs, then I would say “yes,” cash out the 401K to settle the debts… even with the cash out penalties…because you’d be averting long term damage to your credit rating. FYI: If you are many months behind on your credit cards…then you’re credit rating is already damaged anyway regardless of whatever you do….

     If you are “many” months behind, then you may want to try to settle for less…make offers starting @ 30% and go from there. Only do this if you can pay any settlement up front…..Don’t waste your time if you can only pay a settlement in small amounts over several years…they aren’t interested in these payment terms for settlements…they’d want them paid up front. Get all terms for any settlement up front BEFORE you pay….then pay with a money order or cashier’s check. Don’t give them your checking account numbers.
     If your cards have already completely defaulted – http://sites.google.com/site/catdadsadvise/

9. QUESTION:
   Is it not adviseable to borrow from your 401k?
   I have about 9 years before retiring and am shopping for a new home. I’m thinking about borrowing from my 401k in order to spend a little more on the house. Am I commiting financial suicide? Thanks!

   • ANSWER:
     Options:

     Roll the money into your mortgage (get a larger loan). The interest rate will be lower then a 401k loan, and it’s deductable.

     When you take out of a 401k, there is no penalty. But you now don’t have that money available earning interest/dividens.

     It’s never recommend taking out a loan on 401k. But if that’s the very last source of money, it’s better then taking a withdrawal on it.

10. QUESTION:
    Wise to borrow from 401k plan when markets are down? I need to buy a car and my credit is very poor.?
    my situation is consired a need, not a want. Im planning to pay this loan in a year. Loan amount is 4000. In order to pay this loan off in a year, roughly 350 dollars will be deducted from my pay monthly. Im certain I can do this! I would appreciate the most inputs possible. Thanks! Anthony R

    • ANSWER:
      Not at all. You’re just paying yourself back with interest so It’s not like your putting your money in some uncertain financial market. A couple years back I took 25000 out of my 401k to buy a 2004 Dodge Durango. Mine was over the course of 5 years repayment but I end up making money because my interest is payed back to myself. This is really the best option since you’re credit is poor and now-a-days, lenders are being super strict on who they give loans to. Hope I could help : )

      alec b

11. QUESTION:
    How 2 borrow money from 401k?
    ok my husband and i have to move on the 1st and we need atleast an extra 1k to move comfortably and get situated … can we borrow money from his 401k?
    he has been working there for about 3 yrs and puts the max in the 401k

    I dont think we can get a loan because he already took one out 3 months ago and is taking courses for work to be able to move up (the job will pay for the schooling in full once he passes)

    do you know how long it would take to get the money? is the smart to do? do we have to pay it all back in a month or do they give you time?

    any tips??

    • ANSWER:
      Talk to your plan administrator, there are usually terms and conditions defined for the plan regarding loans. I think it usually take a week to two weeks to process the paperwork and get the money.

12. QUESTION:
    Is it wise to borrow from your 401k?
    Ok I have over 12k in debut and i have a very large 401k to the poient to where i can borrow 9k from my 401k and pay it back at 8% over 60 months. Is this wise what are the pros and cons thanks.

    • ANSWER:
      The pro is that the interest you pay is essentially to yourself.

      One of the cons is, if the investments are growing at a faster rate, eg. 12%, you’re missing out on 4% per year.
      The BIG con is that if you lose or quit your job you have to pay it all back immediately or else it will be considered an early distribution in which case you will owe ordinary income tax + 10% penalty to the IRS.

13. QUESTION:
    Can I borrow from an old 401K for my first home purchase?
    And if I can borrow from this old 401K, will I benefit myself in the long run with the balance of the 401K when paying it back?

    • ANSWER:
      You can only borrow from your old 401K if it’s still active. You can borrow up to a certain percent of what you have in it. Call that 401K company and ask them what the consequences are from borrowing the money: interest and loan repayment schedule.

14. QUESTION:
    Can you borrow again from your 401k?
    My husband borrowed from his 401k 3 years ago. He borrowed half and has been paying it back monthly from his paycheck. He still has about 2 years to pay it off. Can we borrow from it again since he is still paying on the previous loan?? We need the money for a down payment.

    • ANSWER:
      I dont know if yours might be different but with our 401k you cannot have two loans out at the same time…you CAN however get what they call a hardship loan. This is only available for things like a down payment on a house, education, medical bills, ect. It is different from a loan because you cannot pay it back, it is just a straight withdrawl and it is taxed when you take it out. We also had a loan with our 401k and we could not get another one until it was paid off but we were able to get the hardship withdrawl for our down payment of our home. Hope this helps!

15. QUESTION:
    Is it possible to borrow from 401k for refinancing closing cos?

    • ANSWER:
      Orlando

      Yes, many 401K’s have a provison to borrow or withdraw for a firts time home purchase. Contact you HR or 401k Trustee top see if our qualifies!.

      Soccerref

16. QUESTION:
    I live in Wisconsin how do I borrow from my 401k?
    I would like to know where I go to borrow against my 401k! And how long does it take to get the money? And can you do it online? Where do I go to do it?

    • ANSWER:
      The only place you get a loan against your 401(k) is from your employer. Talk to your HR department and/or plan administrator to find out if they allow loans, and if so, what the terms are.

17. QUESTION:
    Is it wise to borrow money from my 401k fund to pay off my house?
    I still owe 80grand on my home loan. If i borrow 80gs from my 401k, then i be debt free. Some people say it’s a bad idea. These are the same people(so called financial analyst) that made our economy bad. Regular Joe like me says it makes perfect sense. No more debt and no more bills and besides the 401k loan is going back towards my retirement. I am sticking with the regular Joes. I want other opinions about this.

    • ANSWER:
      Your 401K is not a slush fund or a general savings account. That fund is meant to invest and build over the long term, for retirement. Experts can give you lots of reasons why taking out a loan will lower your return on investment.

      What happens if you change jobs? That loan from your 401K must be paid in full or it is treated as an early withdrawal, complete with a 10% penalty and the income tax liability.

      Besides, you are not really debt free. You just shifted the debt to another loan. One that you can’t take the interest as a tax deduction.

      Better way to deal with your mortgage is to pay extra to the principle every month. Even a month will save a lot of interest.

18. QUESTION:
    Should I borrow money from my 401K to pay down debt?
    I have about 12K in debt, in credit cards. The payments are not hurting me write now but some months have been tighter than others. I can borrow money from my 401K and pay that back over time. My company takes the payment right from my paycheck. Just curious of the pros and cons of doing something like this.

    • ANSWER:
      Cons: tax penalty for early withdraw may gobble up any savings in interest. Your employer may match your 401K at a high enough rate that you would lose substantial money. Your age (if you are over 40 – will you have enough time to recoup the loss?)

      Pros the savings in interest you will pay could be more beneficial than the loss of tax penalty. Getting out of debt. Increasing your credit score. Lowering your stress level.

      Instead of this measure, have you considered power paying to pay off your debt? Since you are considering re-payment of the loan, you must have some extra money at pay-check time so, instead of the tax penalty, try power paying. You can find information about how this works at http://www.extension.iastate.edu/publications/pm1873a.pdf

19. QUESTION:
    Can I borrow from my 401k even if I”ve just stopped contributing to it for a while?
    I plan to get another job soon and also move this 401k to a IRA. Also my job does not contribute any amount to this 401k.

    • ANSWER:
      There are some plans that you cannot withdraw from even by paying the penalties (if under 59-1/2) while others you can. It’s up to your plan and plan administrator. There are hardship rules that might let you take money out for. Call the holder of your plan for what you can and cannot do for an honest and accurate answer for your situation(s). Don’t take a loan off the amount unless you can pay it back in full before you leave your employer. The loan may be payable upon your termination, voluntarily or not.

20. QUESTION:
    Can you borrow from 401k to pay for your chapter 7 bankruptcy upfront cost fee?

    • ANSWER:
      First, not every 401k plan allows for loans. Check with your employer.

      Secondly, it could be a problem if the loan has to be included in your Chapter 7. The trustee may not allow you to repair the 401k loan and not other creditors.

21. QUESTION:
    If you borrow from your 401K and then decide to move jobs, how do you pay off the loan if you don’t have the $?
    My husband and I are looking to relocate to a cheepr area, we borrowed K from his 401K to buy our house. Now we have to either pay it back somehow or pay a penalty and income tax on the loan…which is better?

    • ANSWER:
      Hopefully there is enough equity in the house to refinance and pay off the 401k loan. At first glance this might look to be a bad thing but you are just trading debt for debt – no different than refinancing to get a lower rate. I don’t advocate this to pay off credit card debt or other consumer debt…just in this type scenario where your debt was due to the house purchase.

      Only other option is to take a cash distribution of enough money to pay the 20% tax PLUS 10% penalty and roll the rest over to another 401k/IRA. Otherwise you’re looking at a 10k tax liability.

22. QUESTION:
    Can you borrow from your 401K for a home land contract?

    I know you can borrow for a home I just dont know about a land contract.

    • ANSWER:
      The statutes governing 401K loans do not place restrictions on what the loans are used for except that the loans must be reasonably available to all participants. Beyond that it is completely up to your employer. The law doesn’t require them to allow loans at all. Some don’t allow any loans whatsoever. Others couldn’t care less and even allow loans to pay off credit cards, buy a car, or take a vacation.

      The costs of administering the loan are all paid for by the employer which is why they place restrictions on what the loan can be used for; they don’t want too many.

23. QUESTION:
    Unexpectedly retiring next month and plan to borrow from the 401k to pay off debts and remodel our home.?
    We have stocks outside the 401k that we could sell but would rather wait until next year because of lower income after retirement putting us in a lower tax bracket.

    We plan to borrow 10% to 20% of the 401k balance.

    The money is in the money market in the 401k so it isn’t as if we had it invested in funds. If they take part of the loan out of the funds, we could buy more back.

    This would allow our 401k to grow for two more years before we start drawing money from it. It would also allow us to get our home ready to sell. We plan to borrow enough to make the payments, if it comes to that.

    It seems to me that would be better than taking out money and paying taxes on it. Money paid back in will create a higher income stream for us when we start drawing from it.

    Is this a good idea or what?

    • ANSWER:
      Any money borrowed from your 401K becomes due (usually within 60 days) when your employment ends. If you don’t pay it back in the allowed time it becomes a withdraw and is reported to the IRS, which will want income tax on it. Check with your plan administrator.

      Selling stocks held outside a tax differed account would be a much better idea as that money is taxed at a much lower rate.

      Withdrawing from tax differed accounts (401K, IRA, etc.), in general, should be done after all other accounts are exhausted.

24. QUESTION:
    Can I borrow from my 401k penalty free?
    As we all know, times are hard. I need some fast cash now, but don’t want to borrow from friends or family, or get a title loan. Someone told me right now you can borrow or take money out penalty free. Does anyone know?

    I have about ,000 in my 401k and need about 0 or so for bills, etc.

    • ANSWER:

25. QUESTION:
    When buying a business, is it better to take a home equity loan or borrow from my 401k?

    There are no tax penalties from borrowing from my 401k. I would be paying myself back with 8% interest over 5 years.

    • ANSWER:
      The whole point of putting money into a 401k in the first place is to defer tax on your investment until you withdraw it. (You funded it with pre-tax dollars).

      You will repay your loan (albeit to yourself) with dollars you have already paid tax on, and will be taxed again at retirement on the same money.

      As others above mentioned, there *could* be tax benefits to using a HELOC, but you should consult a tax advisor, since sometimes the benefit is negligible, or non-existent depending on your personal tax situation.

26. QUESTION:
    What penalties will I have if I borrow from my 401K, I am over 60 and do not have to pay it back?
    I need to pay off all of my outstanding bills. I found out my group has been targeted for a layoff after the holidays. Thanks, for any information you can provide!!

    • ANSWER:
      No penalties.
      I just read last week that if you are laid off after age 52 1/2 , you will not pay the 10 % penalty on the withdrawl. There may be some limits – you may have to be unemployed for a year. REASEARCH THIS.

      I bet anything that your HR person won’t know about this (they are basically dumb to new rules). Google 401K layoff
      I would find the article for you – but I’m hungry.

      Do some reading. You might not have to BORROW – you might just be able to take the money out.

      One more thing, don’t let these groups that come into companies trap you into buying annuities. I feel sorry for the souls that get trapped in these. I guess if you don’t know how to handle money AT ALL – they’re ok.
      /

27. QUESTION:
    Can I borrow from my 401K for a down payment on a house, if I no longer work at that job?
    I have a 401 K that was set up through my previous employer. I quite last year to raise my daughter and now my husband and I want to use it as a down payment on a house. Can I withdrawal it without having to pay a heavy tax?

    • ANSWER:

28. QUESTION:
    can i borrow from my 401k if i dont contribute?
    i have 1400 in my 401k account, and it is all employer generated contribution. i do not invest any money into my plan. technically that money is mine because if i quit i take it with me. can i take out a loan on that money?

    • ANSWER:
      That’s a pretty interesting 401k plan if even tho you are not contributing you still get an employer contribution. Are you sure you actually have an account?

      Typically you have to contribute and an employer will match a certain percentage of your contribution. You have to be vested to take the employer contribution with you if you leave the job — typically 20% for each year you are there.

      As to whether you can borrow against the 401k, check with your HR dept. Some plans allow borrowing, some plans don’t.

29. QUESTION:
    If i borrow from my 401k to buy a house?
    Will i have to pay it back or pay penalties?
    I thought you could use the money to buy a home and not have to pay it back?

    • ANSWER:
      Basically, it’s one or the other. If you pay it back, you’ll get no penalties. If you don’t pay, it will count as a withdrawal and you’ll get penalized big time. Not only will you pay a withdrawal penalty (usually 10%), you’ll pay taxes on the withdrawal – since it was added invested tax-free. So, look for a total fee expense of 40-50% of the unpaid loan balance.

      Some 401k plans will let you take 15 years to pay back a loan that is used for home expenses (buying, renovating). Of course, you may also have to pay it back the second you leave your job.

30. QUESTION:
    If I borrow from my 401K to pay off a defaulted private student loan, can I remove the money tax/penalty free?
    I would probably be borrowing 30% of my funds but I am young, and have time to invest.

    • ANSWER:

31. QUESTION:
    Need to borrow from 401k for med expenses & wages lost, help!?
    Hi, my husband is having knee surgery (again) this Friday. 2 weeks ago, I lost my full-time position (cut from 40 hrs/wk to 13 and less/hr) and I will lose all medical coverage one week after his surgery. His surgery will be covered but we can now not afford the copay/deductibles, also, his follow up appt & physical therapy will not be covered. To make matters worse, he does not have sick pay and so we need to cover at least 2 wks. of his wages.

    His work informed him this morning that it is illegal for him to borrow from the 401, this is after telling him it would be fine last week.

    Any input on whether or not it is in fact ILLEGAL to borrow from the 401 for needs such as ours?
    Thanks all of you, for your advice. My husband just called & he is going to cancel his surgery. My med/dental/vision insurance was free of charge to me as a full-timer, it was excellent insurance. His is ok insurance and will cost us 0/month. It is Humana (sp?)insurance, it is kind of, to me, like a savings account which will have to build. We are responsible for the first 00 in medical bills, each, and then the company picks up the rest, unless he has the money available on/in the policy. It will take time for it to build. His 401k is funded 100% by him, the company does not contribute. He needs the surgery but we both feel that a thousand pounds was just lifted off of our shoulders. Life goes on….. Thanks again.
    As for cobra, I looked into that as soon as I was notified of my becoming part-time, it will cost us just under 00 per month. Not a good deal at all for us.
    thin kab…

    The hospital was requiring that the co-pay and deductible be paid upfront. Then there was the lost wages for 2-3 weeks for my husband and physical therapy which would not be covered.

    Long story short, a job at a pizza place or wherever would not make a dent in what I would owe. We have cut back as much as possible and sold our teenaged daughters car as well. I will get umemployment which puts me somewhat nearer to my previous income and I am seeking new employment daily. I am positive I will find another great job. It’s been extremely difficult dealing with mine as I have been there almost 13 years.

    Thanks very much for your response, I appreciate all input.

    • ANSWER:
      Legality aside, it’s just a bad idea all round to “borrow” from your 401(k)….your potential losses in growth from doing so FAR outweigh what it will cost you to find the money somewhere else. This is deliberate on the part of the tax code to discourage what you are wanting to do! (The government really DO care about your future! And you should, too…)

      The hospital are not going to come and take your husband’s knee away if you don’t pay when you get the first bill. Sell something/borrow from a friend/deliver pizzas to rustle up the cash for the co-pay, and then take it from there.

      Find another job. If you are in the US there are more jobs than there are people to do them!

      Best wishes.

32. QUESTION:
    Borrow from 401k?
    I have gotten into some credit card debt by thinking I could use some credit (interest free that later turned into higher interest credit), time the market, and then pay off the debt…it didn’t turn out that well and instead my credit balance increased and I feel I should pay it off.

    Iwill receive a public sector pension when I retire in a few years, so I’m not “all” that concerned about my deferred comp. balances at the moment, so I feel I should borrow from my 401k plan (my public sector oranization will allow me to borrow up to half my balance in my 401k from myself) and pay off my credit card debt…

    I feel this would be better that withdrawing the money from my 401k ( I know I must pay tax and a penalty if I do this)….

    Does my plan of borrowing from my 401k to pay off my credit card make sense, and if so, does it make more sense than just withdrawing the required amount of money from my 401k to pay off my credit card debt…??

    • ANSWER:
      NO NO NO AND HELL NO!

33. QUESTION:
    Borrow from 401k? I think I have the right plan…..?
    I have high credit card debt spread across multiple cards and I just can’t seem to get ahead.

    Thinking about borrowing from 401k to turn things around once and for all. I know that most people are against the idea but here is my reasoning;

    My Credit card interest is high

    I am looking to pay back the 401k loan in 12 months, to minimize the loss of appreciation from those funds in the 401k

    I want to get out of my rut so bad I really don’t care about losing some interest on the amount I plan to borrow, especially when it’s only over a 12 month period coupled with the amount of interest I’ll save short to long term from the credit cards.

    My only real concern with borrowing is that it will be considered income come tax time next year. But….

    I reduced my 401k contribution last year which increased my taxable income this year and reduced my tax refund.

    To offset the loan as income this year, I would be looking to increase my 401k contribution again to help balance that aspect out.

    Seem like the right thing to do?

    • ANSWER:
      No it doesn’t seem like the right thing to do. First of all 401k loans are a bad idea in general. You unplug your investment and take on a fair amount of risk. Should you lose your job for any reason at all, the loan becomes payable immediately. If you can’t pay it back, it becomes a withdrawal and is subject to taxes and penalties.

      Now here’s the real reason. If you can’t seem to pay back your credit cards, why do you think you’ll be able to pay back the 401k loan? It’s not about interest. It’s about behavior. If I were you, I would stop contributing to your 401k for 12 months and cash flow your way through your credit cards. Knock this out as fast as you can and then get right back to savings.

34. QUESTION:
    Can I borrow from a 401k to purchase a house in Canada?
    am a Canadian Citizen. I have recently moved back to Canada after living in the USA for several years. I have money in 401k, but none in an RRSP. My question is….can I borrow against my 401k from the USA to purchase a primary house (my only house in either country) in Canada? I know I can borrow against 401k to buy a house in the USA, or borrow from an RRSP to purchase a house in Canada, but does it work the same from borrowing from 401k to purchase a house in Canada?

    • ANSWER:
      The company that manages your 401K must provide you a summary description upon request. My 401K will let me borrow up to 50% of my 401k for any reason I want. Your plan may be similar, the rules are set by the IRS.

      Grandpa

35. QUESTION:
    if i borrow from my 401k does that build credit like a loan?
    i was thinking of borrowing money from my 401k will that be like a loan and if so will i build credit has anyone done this and if so how do i even borrow my mom told me i can borrow money from it

    • ANSWER:
      It does not help you credit at all, and you have to pay it back by deductions from your paycheck.
      Not a good idea unless you are desperate.

36. QUESTION:
    Retirment Question – Borrow from 401k to fund IRA?
    I would like to add the maximum possible to my retirement this year. I am currently maxing out my 401k. I can afford to fully fund my roth IRA over 12 months. However, I would like to fund it 100% in January. Should I borrow the money from my 401k and put it in my Roth IRA then repay my 401k over the year. This seems like a win – win to me but I am not sure. My theory is over time I will get a better return on investment with the full amount then small amounts each month. (this is assuming the investment does well of course)

    • ANSWER:
      I would advise against it….dollar cost averaging works better in a volatile market such as we are in. Remember, even though you are purchasing lump sum in January in the ROTH you are also liquidating lump sum in January to fund the loan. So the two wash….and you lose the benefit.

      Other then that it’s a way to get only a little extra into the plan via the after-tax income that you would be contributing via the loan.

      To me it’s not worth the tie that is created between you and your current employer. Leave the job while a loan is in effect and the taxation and penalty on that loan balance blows your whole idea out of the water.

37. QUESTION:
    Have a 11k equity loan. . Should i borrow from my 401k to pay off this little amount or wait?
    in 2004 I bought a condo. 2006, my family grew and I needed to upgrade to a larger single family home. I borrowed a fixed payment 71k equity loan (9.5% interest) from the condo to use as down payment for the new single family. currently, the condo is getting rented out (the rent is convering the mortgage payment so it is turning out even) and I have also paid down the equity loan to 11k using my bonus. However, I want to pay off this equity loan sooner, because even though I paid the equity down quite a bit there is still a fixed payment of 0 that I have to pay each month until the loan is extinguished. From my estimates I wont fully pay it off until the end of 2007. Should I borrow from my 401k and pay off the equity loan already? Or should I just wait till the end of the year and use my bonus. I figured paying off the equity now can increase my cash flow.

    Also, do you think I can get tax exempt for withdrawal for paying off this equity since it was from my first home.

    • ANSWER:
      Either way it is a loan!!!! no the interest on the home loan can be at least taken to your tax return>

38. QUESTION:
    Should I pull/borrow from 401K to pay off CC Debt? ?
    Hello – I’m 27 and Married (my husband is 34). We own a home which currently has no equity. We have K in CC debt. I know exactly how we got there and we haven’t use CC in years (our CC debt started at two years ago). We’ve been doing a relatively decent job of paying them off but with the recent market crash many of our CC companies have decided to hike up our APRs to 18%+ (all were below 8%). It has make it nearly impossible to pay off any principle balance lately.
    Our question is, my husband has k+ in his 401K from a previous job (he’s now self employeed). Should we or can we pull or borrow from this to pay off our CC debt?
    We have/ I have contacted all of our CC companies and received the lowest rate possible and consolidated where I could at a lower interest rate where possible. We do not want to purposely default in order to get debt consolidation. Bankruptsy is not an option.

    • ANSWER:
      I feel your pain – essentially, you need to decide a few things here:

      - If you want to default, since the debt is substantial, obviously don’t touch the 401K (this is a last-resort option, but I want to mention it up front).
      - If you want to reorganize, do *not* use a debt consolidation service. Call each card company and renegotiate the rate. They’re all concerned that people will take option (a) above, so you have some bargaining power, especially if you’ve been paying off the cards reliably for a couple of years.
      - If you haven’t look at cheap balance transfers, now is the time to do so. Discover and Mastercard have a few I’ve seen – you may well be declined, but it’s worth an online application.

      Ok, so now onto your 401K:

      - Any money you remove obviously gets the 10% penalty + taxes, which will amount to around 35%. That leaves you with k (roughly), which doesn’t pay off the cards.
      - If it’s still worth k after all the recent problems, I would suggest not using this money, since it will likely recover in the next 2-3 years (if it’s equity based).
      - If your APR gets increased further, or your income situation changes, then you should reassess what I’ve just said.

      As an aside, I have a suspicion that the tax rules may get changed in January to accommodate emergency 401k withdrawals (ie. removing the penalty) due to the economy. So if you can hold off until then, I would recommend doing so.

      I hope this helps!

39. QUESTION:
    how 2 borrow money from 401k?
    ok my husband and i have to move on the 1st and we need atleast an extra 1k to move comfortably and get situated … can we borrow money from his 401k?
    he has been working there for about 3 yrs and puts the max in the 401k

    I dont think we can get a loan because he already took one out 3 months ago and is taking courses for work to be able to move up (the job will pay for the schooling in full once he passes)

    do you know how long it would take to get the money? is the smart to do? do we have to pay it all back in a month or do they give you time?

    any tips??

    • ANSWER:
      Borrowing against your 401(K) is a bad idea, it makes no financial sense. You may have to pay a federal tax penalty of around 10%. Whenever you pay it back, you are paying it back with money that has been taxed already. When your husband retires, and withdraws at 59.5 years of age, he’ll get taxed again! This is the equvielent of having a credit card that has 40% interest!

      Since you are moving, you didn’t mentioned if he was transfered or moving to a new job. If he moving to a new company, his former employer may ask to re-pay the 00 as soon s possible, plus you may get tax for oridinary income.

40. QUESTION:
    Is it wise to borrow from your 401K for bill consolidation?

    • ANSWER:
      You can’t do it. If you are still employed with the company sponsoring the plan, the distribution will be taxable and the company will likely withhold federal and possibly state income taxes.

      If you are no longer at the company and roll the 401K into an IRA account, then the only loan you can take from the IRA is for 60 days. If you put the money into another IRA account within those 60 days it is considered as a rollover. If you are younger than 59.5 on the date of the distribution, you will also have to pay a 10% penalty tax under Internal Revenue Code Section 72.

      The only loan permitted from a 401K plan is for the purchase of a home. This seems good, but if you lose your job (laid off, change companies, etc.) the balance of the loan becomes a taxable distribution subject to the same 10% penalty.

      I hope this helps.
      Gary

41. QUESTION:
    What are tax penalties when borrowing from 401K to pay for home, then laid off ?
    I borrowed from my 401K to purchase home. The terms of loan were payoff over 5 years. I was just laid off. I have to now pay back the amount in full. BUT I am also being told I will incur tax penalties. I thought there were no tax penalties when the loan is used for the purchase of a home ?

    • ANSWER:
      Well, however told you that there were no tax penalties for borrowing from your 401k was wrong. It must be repaid with in a certain time frame. You’re getting laid off has nothing to do with your decision to use 401k money for a purchase of a home, it just makes things more complicated. Call IRS or see a tax preparer.

42. QUESTION:
    Can I deduct the interest when I borrow money from 401k account to pay off the 2nd on the rental property?

    • ANSWER:
      Nope only interest paid to a mortgage lender is deductible

43. QUESTION:
    Is there ever a good reason to borrow money from your 401k?
    I am still very young and do not have a substantial amount of money saved in my 401k. Will it kill the exponential growth potential of my money if I take some out now in the early years? Isn’t the growth now is still is still more linear fashon than exponential?

    • ANSWER:
      Investment in 401K is long term and your pension money when you retire. Try not to touch it.The growth is steady,slow but definitely going up over the years.Regular investment into portfolio from young age,like yours,is a long successful shot.I urge you to invest regularly,keep an eye on it,arrange yearly 2 meetings with your investor to make him aware that he does not screw with your money and forget about it till retirement age.I do not know how old are you but my friend a very tough time is coming and your money is the answer for your decent survival.

44. QUESTION:
    Can you borrow from a 401k while in chapter 13 bankruptcy? How will the trustee know?

    • ANSWER:
      Borrowing from your 401k is still borrowing and is prohibited without the authorization of the trustee. While you are in essence borrowing from yourself, there is an obligation to make payments to repay the loan. As an asset that should have been listed when you filed, you cannot cash in or otherwise dispose of funds in a 401k account, just as you can’t sell off property considered an asset without permission from the trustee and for good cause.

      If you are still having to try and borrow money, you need to take a look at your plan. If you can;t make the payments on your plan and still meet other obligations without borrowing your plan is not working. In general, a Chapter 13 plan is supposed to include ALL debts owed with the exception of regular utility bills and, if it wasn’t in arrears at the time of filing, your mortgage (if you had arrears even your mortgage should have been included). There are some few exceptions such as taxes and student loans, but the whole goal of a Chapter 13 is to take all your debts and put them into one payment to the trustee.

      Talk to your attorney about a modification of your plan, if possible. If your financial situation has changed, such as a job loss or a big increase in a mortgage payment, you may end up changing your Chapter 13 filing to a Chapter 7. Only your attorney can answer questions like that.

45. QUESTION:
    Should I borrow from 401k to buy stock on “margin” instead of borrowing from broker?
    Typically, margin accounts charge interest on borrowed money used to buy stocks. My broker charges around 4.5% which is similar to borrowing from my 401k. The difference is I would be paying interest to my 401k instead of a broker and I wouldn’t be subject to maintenance calls, etc. I can afford to pay back the 401k according to schedule regardless. I’m thinking about borrowing k initially. I’m young and have time to recover from a full loss as well.

    • ANSWER:
      Don’t mess with your retirement trying to save a few bucks in interest.

46. QUESTION:
    is it cheaper to sell stocks or borrow against 401k to pay bills?
    Close to paying off bills. Can sell stocks or borrow from 401K to pay off bills. Which is better to do?

    • ANSWER:
      Borrowing from the 401K…

      If you sell stock, and you happened to have made money from it… you are on the hook for Capital Gains taxes… If you lost money on the stock, you can write 00 off your Federal taxes each year until the loss is consumed, or you have capital gains down the road. Then you can write off the loss penny for penny with the gain…

47. QUESTION:
    While never prudent to borrow against your 401k – did I get lucky with an exception?
    I dont need a lecture on the why you never borrow from your 401k, but I had to, and I did so right before my portfilio took a 15% hit (and climbing) My thinking is I sold HIGH and now I am buying them back slowly at a lower price – besides getting lucky on my timing – if there is such a thing as a good time to borrow from 401k, was this it?

    • ANSWER:
      If you can buy back at a lower prices, pay off the loan for the full benefit of “selling short.” ! assume you are in it for the long term. Opportunities like you are getting will help cover your losses on the rest of the portfolio and when the market comes back, and it will, you will have made real money. Don’t listen to the common line put out by your 401k administrator and your company. They love the sheep who think you only make money buying in the hope of increases in prices.

      Good luck

48. QUESTION:
    If I don’t have 20% to put down on a new house, is it better to pay PMI, or borrow from 401K (w/o penalty)?
    I’m in my early 30′s and I have an offer pending on my current condo (In this market I consider myself very fortunate!). Between savings and what I will make on the sale of my current home, I will have ~15% list price of liquid $ to purchase the larger home that I’d like in Bergen county, NJ. I have a choice – either, A.) I put 15% down and pay PMI for the next 1-2 years, B.) I “borrow from myself” without penalty from my 401K. I can repay myself back over 5 years… with only a nominal, one-time (~) fee from Fidelity. The obvious downside of (A) is that I’m throwing money out the window with PMI (~0/month). The downside with (B) is that I am foregoing the compound interest that I could be getting in my 401K (my sole source of retirement savings) and I am also “hand-cuffed” to my current employer untill the “loan-to-myself” is paid off.

    What would you do?

    • ANSWER:
      A.

      PMI is a rip-off, but your best option.

      If you borrow against your 401K and then lose your job, you have to (with no job) immediately repay the entire loan (in addition to making the mortgage payments (with no job), or the outstanding 401K loan balance becomes taxable income, on which you have to pay federal income tax, a 10% penalty, and NJ income tax (with no job), in addition to paying the mortgage payments (also with no job).

49. QUESTION:
    Should I borrow from my 401K?
    I believe the market is due for at least a 10% correction. I can borrow from my 401K to pay off a car note I’m paying 7% interest on. By borrowing I shield my money from any market correction along with avoiding a “hit” if the market does what most people expect it to do. I expect to have the money repaid in 2 years. Why is this frowned upon by financial advisors giving todays market condition (all time high with negative indicators)

    • ANSWER:
      You could, but I wouldn’t. If you want to get rid of that 7% loan, why not look into getting a credit card with a 0% Balance Transfer off? Use that money to pay off your card, then pay off the credit card at 0% interest. just because you think a market correction is coming is no reason to pull your money out of your 401k, if your that worried about it (and near retirement) look into putting your money into a safer investment, if your young, just let it ride itself out for several years.

      if you own your home, take out a equity line of credit and the interest can be tax deducted.

50. QUESTION:
    Can I borrow from 401K……?
    If I’ve already left the company? Left my old job 18 months ago and I have a stagnating 401K that I’ve considered rolling over now that it’s performing poorly in this economy (lost 25% so far). Because it’s waning more than it’s waxing, I’ve also considered cashing it out because I could really use the money right now. It’s just slowly dwindling away, but all the experts claim to leave it alone due to stiff penalties and such. However, with the projected economy turn around time of 2015, who knows if I’ll have any money left in it at that point. The investment of [FAQ-QUESTION].00 is still [FAQ-QUESTION].00 last I checked. I heard borrowing from your 401k is a better option but can you do that if you’ve already left the company? Anyone been this route? Thanks. Oh, I’m also young enough to start over.
    Yes, I think I could live with half. So far I’ve witnessed a quarter of it just evaporate without any recovery for about a year now

    • ANSWER:
      Roll it over to a traditional IRA at a bank or better yet at a brokerage. There you can invest it in what you want. So if you think the market will suck for a number of years, invest it in money market funds so you can collect a nice, safe 2% interest.

      I have been in the market almost 30 years and have seen a LOT worse than this. I am staying fully invested because we will come out of this.

      It sounds like you are a lot younger than me and are kinda bummed out because you are finding out that the stock market can go down as well as up. Since you are a buyer at this time of your life and probably will not be selling anything in order to live off for quite a while, why would you even want the market to be up. With it down, you are able to buy a lot more for the same money. The only time you want it up is when you retire. If that is more than 5 years from now, stay fully invested. It will come back. And quit watching the prices. They mean nothing, except that you can buy more bargains. That is exactly what Warren Buffett is doing. He is buying every stock he can find. He says they are all bargains all of a sudden. And you are getting the same stock that would have cost 20% more a year ago. I guess that is why Warren is a billionaire and is literally the most successful investor in history.

      The last thing you want to do is to sell it at these deflated prices and then give a huge chuck of it to the government for taxes and penalties.