In a earlier post, I asked the question whether 401(k) loans were easy money and discussed both sides of the questions. Yesterday, Walter Updegrave, MONEY Magazine senior editor, in his Ask the Expert column responds to a reader who asks whether it’s a good idea to borrow money from your 401(k) account.
Mr. Updegrave says that treating your 401(k) account like a piggy bank is dangerous for the following reasons:
- Easy access to the funds can cause some people to overspend.
- It’s not risk free because it usually has to be repaid when a participant terminates employment, and if not, it becomes a taxable distribution with perhaps a 10% penalty.
- It’s really not a great deal paying the interest to yourself, and you are probably better off taking a home equity loan.