![]() ![]() If you are seeking investment advice or recommendations, please contact your financial professional. ![]() It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. The information is not designed, or intended, to be applicable to any person’s individual circumstances. This is a general communication for informational and educational purposes. Securities, variable insurance products and investment advisory services offered through Securian Financial Services, Inc., registered investment advisor, member FINRA/ SIPC. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. Product availability and features may vary by state. Property and casualty insurance products are issued by Securian Casualty Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Insurance products are issued by Minnesota Life Insurance Company or Securian Life Insurance Company, a New York authorized insurer. But, borrowing from your future should always be your last option and one you don’t exercise until you’ve considered all the risks. Of course, there may be times in your life in which it makes sense to borrow from your 401(k) - for example, if you’re truly in an emergency situation and can’t secure cash elsewhere. You’ll have to pay income tax on the money, plus a ten percent penalty for early withdrawal if you are under age 59½ and the withdrawal did not qualify for an exception. If times get tough and you’re not able to repay the loan in time, it will be counted as a withdrawal from your retirement savings. If you were to suddenly lose your job, the plan will most likely require you to pay the outstanding balance within 60 to 90 days. You’re risking a balloon payment situation that could lead to expensive consequences To add insult to injury, you’ll pay taxes on it again when you withdraw it in retirement. And don’t forget that you’ll be paying back the tax-deferred amount you withdrew with after-tax money - another loan cost that’s often overlooked. You’ll need to make room in your budget to make the payments. If you’ve borrowed for the maximum term allowed - five years (longer if you use it to purchase a home) - all that inactivity can make a hefty dent in your retirement savings from which it can be difficult to recover. So not only are you missing out on potential gains on the amount you withdrew, you may also be slowing down the growth of your principal for the duration of your loan. In addition, some 401(k) plans have terms that prevent you from being able to make further contributions until the loan is repaid. When you reduce the balance of your 401(k) account, you have less money growing along with potential gains in the market. But while borrowing from your 401(k) is an option, it may not always be a good one. When that happens, try to get back on track with contributions as soon as possible to continue building your savings.During those times, you might look at your 401(k) retirement savings and be tempted to make a temporary emergency withdrawal. Saving for retirement is important, but sometimes other needs have to take priority. You shouldn't sacrifice your health or safety now just to keep savings intact for later. And as GOBankingRatesĪnd finally, it's reasonable to borrow from a 401(k) if you need to pay up front for medical treatment, if you need money to avoid falling behind on your mortgage or for other serious needs. In that case, the loan isn't going to have a large impact on your retirement savings because the money is only out of your account for a short time. You expect a house you buy to go up in value, so the money is still working for you.īorrowing from a 401(k) can also make sense for short-term needs, like if you're waiting for a certificate of deposit to mature and you'll pay back the loan as soon as it does. An example is when you're borrowing for an investment, like buying a home. That said, borrowing from a 401(k) is sometimes a good move. When Borrowing Against Your Retirement Is the Right Choice
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