Comments on: Is it Ever a Good Idea to Borrow From Your 401(k)?

By: Chris Hyman

Chris Hyman — Fri, 01 Oct 2010 19:58:44 +0000

In our company’s retirement seminars, they generally recommend NEVER borrowing against the plan, which I think is completely wrong.

1-We work at a Cooperative. Losing one’s job is rare in this situation. Generally, if you’re competent and want to stay, you’ll have a job. I realize many aren’t in this situation, but we were.

2-I used the loan to buy a used car, at a better rate than I could have gotten elsewhere (and I paid that rate back to myself).

3-I had the Title instantly. It was my car at that point, no matter what. A loan from anywhere else would not have allowed for that.

4-I took out the loan in October of 2008. My 401K stuff, except for that loan portion, tanked, and like you, for the next two years I’ve bought my funds back at a discount, plus earned a better percentage from the loan than most of the rest of 401K got. . . that percentage going to me rather than a third party (who would have kept the Title until the loan was repaid, if I’d gone that route).

In summary, I think there may be good reasons not to borrow from your retirement . . . but in my case, I haven’t run across any of them yet.

By: mariwhite

mariwhite — Tue, 08 Jul 2008 10:07:17 +0000

So,…. I’m thinking of borrowing against my 401K – and trying to figure out if this is a “not so bad time” to do it. The way I’m looking at it is this – I’m taking money out of my retirement portfolio and run the risk of losing compounding interest – but in this market – It seems like I’m running an even bigger risk of losing more of my portfolio value. At least by borrowing, I know I’m getting a specific amount back into my account – the loan amount plus pay back interest – unlike what’s going on in the stock market right now. I’d be putting the loan money into a home improvement. Anyone care to comment? Also, does anyone know if you can prepay a 401k loan?

By: Ike

Ike — Tue, 04 Jul 2006 17:07:32 +0000

I think the #1 thing to consider when thinking about taking out a 401k loan is whether or not the return you’re losing by withdrawing the money from your 401k (and losing the compounding interest forever) is less than the return you’re going to get from the asset you purchase with the withdrawn money.

As long as you purchase an appreciable asset with the withdrawn money, you can’t go too wrong.

By: JLP

JLP — Mon, 05 Jun 2006 22:01:42 +0000

Foobarista,

I’m not sure if ALL 401(k)s are the same but I know that the ours sells the funds that you are borrowing and the proceeds are loaned to you.

It can be expensive money if you do it at the wrong time. My wife and I were lucky (blessed?) that we sold out close to the top of the market.

By: Foobarista

Foobarista — Mon, 05 Jun 2006 21:42:44 +0000

One question I have: are 401K loans simply liquidations of your account that you pay back, or is it a separate loan that is secured by money in your 401K account (similar to a stock margin loan)? (I think it’s the former, but not sure.) This matters enormously, since in the former case your loan principal is out of the market until your loan is paid off, while in the latter it would still compound while you were paying down the loan.

If it is the latter, your real interest on the loan would be the interest rate of the loan itself + the lost appreciation from the loan principal in the market. This sounds like really expensive money…

By: Rethink(IP)

Rethink(IP) — Mon, 05 Jun 2006 14:14:13 +0000

Carnival of the Capitalists – CoTC – Rethink(IP) Redux

Well, ask Steve said earlier – we are at it again. Welcome the the June 5th edition of the Carnival of the Capitalists. Lots of good things to read and plenty of information for everyone. My special thanks to Brian…