[kdawg22]

Is it a good idea to take out a loan from your 401(k) plan for the purchase of a primary residence?

I like the idea that you pay interest back to yourself. However, one of the biggest drawbacks is that you may not be able to contribute to the plan while you have an outstanding loan (depending on your plan.) So, is it worth taking out a loan from your 401(k)

[Puppykoala]

make sure you dont lose the current job before paying everything back. Or else you might need to payback all in once upon unemployment which can be dangerous.

[Recked]

I advise clients to never take a loan from a 401k.
If you wind up in an unfortunate situation that you lose your job, you will have a certain time line with which to repay that loan.
If you fail to repay, then not only are you still unemployed (or underemployed) but you also end up getting hit with a large tax bill (tax plus penalty) on the distribution.
Never touch the retirement account. If you want to “pay yourself interest” just aggressively pay off the mortgage. Get a traditional 30 year, but then run an amort schedule on paying the normal minimum vs paying double or triple. The faster you pay down that note the more interest “you are paying yourself” or not paying the bank. The sooner the note is paid off, the sooner you can aggressively save for the future, the sooner you can retire/pursue other interests.
–
Having no debt is an incredible feeling and I encourage everyone to try it.

[jombe]

Your retirement savings shouldn't be touched unless you are in an absolute emergency. They say the national real estate appreciate rate is 3-5% on average. If you consider getting hit w/ 10% penalty plus loss of potential earnings on before-tax money, it's simply not worth it. Personally, I don't plan on touching my retirement savings unless it's a medical emergency.

FAR - 94 (10/4/15), Local Prep Online Lectures, BISK & NINJA MCQ
AUD - 99 (1/19/16), Local Prep Online Lectures, BISK & NINJA MCQ
REG - 96 (4/19/16), Local Prep Online Lectures, BISK & NINJA MCQ
BEC - 91 (7/19/16), Local Prep Online Lectures, BISK & NINJA MCQ

581 days of listening to lectures, reading texts & 10,000+ MCQs...

[Author]

Replies