Re: Borrowing from 401(k) Plan - Posted by John Katitus (OH)
Posted by John Katitus (OH) on November 20, 1998 at 01:41:23:
My 401K plan was with Fidelity and allowed loans for up to 50% of vested capital. Payment periods were up to five years (your choice) unless the loan was for the purchase of your primary residence, and then it was up to 15 years. The payment, including interest, was taken directly from your paycheck.
When I left my job (trying to forget that word), Fidelity gave me a coupon book. As long as I continue to make the scheduled payments, nothing happens. If I do not make the payments (I don’t know how far behind they let you get), the loan balance remaining becomes earned income in that year and a 10% penalty is assessed.
There is a lot of sentiment against drawing from your 401K. I think most of it is just sediment. “Put your money in the bank and keep it there.” ideology.
First, remember that the interest you pay goes into your own account.
Second, sure, you’re losing the opportunity to make a larger gain in the market, but what if the market goes down? That’s all just a big crap shoot anyway. Wait two years and see how sure you are that it will continue to go up. And are you going to pick the investment that makes money or loses?
Third, your home is probably the safest of your investments. It WILL appreciate over time. It gives you stability against inflation.
Finally, for many people it’s the only readily available pot of money.
Check HR and see what your plan allows.