Dear Dave,
I have an opportunity to take a loan against my 401(k) retirement and pay myself interest. Is this a good idea?
Susan
Dear Susan,
Actually, you’ll end up costing yourself interest. Never take a loan against your retirement!
When you pay interest against your retirement, you cost yourself interest. If you leave the company — which you will someday — the loan against the 401(k) is due within 60 days. If you don’t pay it off, they consider it an early withdrawal and you’ll get taxed and penalized big-time.
If you have a certifiable emergency, like owing the IRS or facing a foreclosure, you may have to withdraw some. You’ll still get taxed, but please don’t ever borrow against retirement!
—Dave
