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Finance Articles
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Should You Borrow From Your 401(k) Account?
By Matthew Keegan
Debt Solutions It feels like your debts are spiraling out of control. With each passing month you are robbing Peter to pay Paul and the heavy cloud of debt is always hovering above your head. When you sit down to work out your money the simple truth is you have more going out than you have coming in. If this carries on there`s a real chance that you won`t be able to make the mortgage payments a few months down the line and then goodness knows what you are going to do. It`d be wonderful if you could pay a fixed monthly fee that would be affordable and keep your creditors off your back. There`s a good chance this can happen if you have a chat with a company that can provide a number of Debt Solutions. A debt management plan is just one of the options that the Debt Solutionscompany can provide. The scheme calculates what you can afford to pay each month and this sum is paid to the Debt Solutionsfirm. All it could take is one phone call to a trained advisor and you could be offered suitable solutions that will lift the burden of heavy debt from your shoulders.
Borrowing from a 401(k) can seem like a risk free loan, especially since you repay yourself with interest. However, there are costs involved that are not readily apparent to the borrower who elects to take out a loan: 1. On the borrowed funds, you lose all tax-favored investment returns. In other words, you are effectively charged extra interest for the loaned funds. 2. Any interest you pay, even though you are paying yourself, is not deductible, but will be taxable to you when the plan pays you back via future distributions. 3. You may have to pay a fee to take out the loan. Add this expense to the loan costs to see if a loan is still cost effective. 4. If you leave your place of employment before paying off your loan, you will be required to pay the loan back in its entirety immediately. If you do not have the funds available to pay back the loan right away, you will then be subject to IRS taxes and penalties which can eat up as much as 30% or more of your borrowed funds depending on your tax bracket. The IRS treats all loans that are not paid back as disbursements. Yes, a 401(k) loan can help fund life?s emergencies, but the hidden costs and fees involved as well as potential taxes and penalties can quickly turn a good thing into a bad move. 
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