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Should I Tap My 401(k)?

Is it possible to use my 401(k) plan to get a loan? –Shirley, California

A loan from your 401(k) plan is an easy way to get necessary cash. This can come in handy if you are having difficulty borrowing money from other sources.

But don't take borrowing from your retirement nest egg lightly. After all, you're borrowing against your future retirement. If you can't pay it back, you'll incur taxes, penalties, and a lower retirement income. If you're going to get a 401(k) loan, it really should be for a very good reason—and almost as a last resort.

Loan Rules

While federal law imposes no restrictions on how you can use the money, the plan administrator can limit loans for specific purposes. In fact, the first thing to do is to check with the plan administrator to see whether or not loans are permitted. If so, find out the permissible reasons to take out a loan. These typically include paying college tuition, funding a down payment on a home for first-time buyers, and  hardship reasons, such as paying your mortgage in order to prevent foreclosure and paying un-reimbursed medical expenses.

Repayment Rules

The rules on repaying the loan are also established by the plan administrator. Typical 401(k) loan rules may include the following provisions: … Back to Article

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