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Mini-Post: Should You Borrow Money From Your Own 401k? (I can do that?)

June 29, 2011

Just read an article in the Wall Street Journal about an idea that gets little attention (which is probably good), but that you ought to be aware of. The article, “Banking On Yourself: Is It Ever Ok to Raid Your 401(k)?“, discusses the few instances where it maybe be a wise choice to take a loan out from your own 401(k). Please understand, there aren’t many moments when that will make a lot of sense, and there are some inherent risks in so doing. But, according to the article, there are some cases where it makes sense to take a loan out from your own retirement account.

We’ve done it. Our 401(k) is in decent shape, and during a time when most 401(k)s were losing money (right along with ours) we borrowed enough money to pay off our vehicle. It was only a few thousand dollars. The interest rate was much better than the bank would have offered, plus the interest paid went right back into our 401(k), and was taken directly out of our paycheck.

As the article explains, there are some risks with borrowing from your own 401(k), so you ought to read the article (and other articles) before you consider this tactic. Then talk to one of your plan representatives and read “the fine print”. I’m not saying this is a good or bad idea, but one that you may consider in certain circumstances…

Be wise…

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