Why Do You Need an Emergency Fund?
- Job loss or unemployment
- Medical or dental bills
- Home repairs
A 401(k) plan is a great way to save for your retirement. You get to save pre-tax money from your pay check which lowers your income tax responsibilities for the current year. With tax deferral, possible partial employer matching and compounding interest, your savings can build dramatically over your working career.
If you have financial needs during the years before your retirement, you may be able to borrow from this account using a 401(k) loan. The question is: should you?
This decision should not be made lightly, since it can have a significant impact on your long-term financial future. Here are 8 key things to consider before taking out a 401(k) loan:
With all the downsides, many financial advisors recommend looking for other sources for money so you can keep your 401(k) intact while you sort out your current financial issues. You may want to consult a financial planner for help evaluating your specific situation.
The key point to remember is that your 401(k) is intended to be a long-term investment to help you live comfortably when you reach retirement age. It’s important to make a careful decision about a 401(k) loan before putting that nest egg in jeopardy.
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1 Study by T. Rowe Price Retirement Plan Services.