25 June 2019

401(k) Loans: Pros and Cons

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Tapping your tax-advantaged retirement savings seems like a desperate financial move (because it is), yet also a sound one in specific circumstances. Best know what you get into with 401(k) loans in terms of time, payback and risk.

Many holders of 401(k)s do in fact tap their accounts. According to 401k.org, about 20% of Americans eligible for a 401(k) loan have one, with balances averaging $7,600.

The amount of your loan usually starts at about $1,000 and maxes out at the lesser of half your vested account balance or $50,000. While interest rates vary by plan, most common is theprime rate plus 1%.

Unless you borrow to buy a home, you must fully repay most 401(k) loans within five years, often on a monthly schedule. Usually, you repay directly out of your paycheck on an after-tax basis and may repay all at once with no penalty.

Click here for the full article in USA Today.

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