Borrowing Against Your 401K: A Loan From Your Future Self

Thinking about a 401k loan? A 401k is meant to fund retirement, but you can withdraw money from it earlier. There can be negative consequences if you borrow from your 401k but they are not as dire as we have been led to believe. Using the money to make or save money or to pay off high-interest debt can pay off.  It goes against personal finance philosophy to take money out of a retirement account before retirement, but under the right circumstances, it is something to consider. 401k Recap By now most of you know what a 401k is but for those new to the site, this will get you up to speed. A 401k is an employer-sponsored retirement account. Employee contributions are deducted directly from your paycheck before they are taxed. The money is invested into one of the funds offered by the employer. If you’re lucky, your employer matches your contribution. This is free money. For the year 2017, you can contribute up to $18,000. Because that money is meant for retirement, withdraws are discouraged before you reach age 59 ½. If you withdraw money before that age, you will be hit with a 10% penalty. There are some exceptions.   If you are no longer working at age 55, if you are using the money to pay medical expenses, or if you have become disabled for example, you can withdraw the money penalty-free. Another way to access that money without the penalty is the subject of this podcast. You can borrow money against your 401k without being penalized. FYI: If picking funds in your 401k, 403b or TSP gives you anxiety, or you fear you’ve made terrible choices than you need Blooom. You’re welcome. Why a take a 401k loan? There are lots of good reasons to invest in a 401k. Not many people get a pension anymore so a 401k may be their only retirement plan. There is also a low bar to invest in a 401k. Your employer does the work; you just have to opt-in. You don’t have to know anything about investing to get started. Contributions are taken directly from your paycheck, so you never have a chance to spend the money. For so