{"id":491672,"date":"2022-09-10T01:29:00","date_gmt":"2022-09-09T22:29:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/outside-the-box-should-you-take-a-loan-from-your-401k\/"},"modified":"2022-09-10T01:29:00","modified_gmt":"2022-09-09T22:29:00","slug":"outside-the-box-should-you-take-a-loan-from-your-401k","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/outside-the-box-should-you-take-a-loan-from-your-401k\/","title":{"rendered":"#Outside the Box: Should you take a loan from your 401(k)?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_89 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6af179f5a9e7d\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6af179f5a9e7d\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/outside-the-box-should-you-take-a-loan-from-your-401k\/#%E2%80%9COutside_the_Box_Should_you_take_a_loan_from_your_401k%E2%80%9D\" >&#8220;Outside the Box: Should you take a loan from your 401(k)?&#8221;<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/outside-the-box-should-you-take-a-loan-from-your-401k\/#4_ways_to_make_borrowing_from_your_retirement_account_less_risky\" >4 ways to make borrowing from your retirement account less risky<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/outside-the-box-should-you-take-a-loan-from-your-401k\/#Greg_Spears\" >Greg Spears<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"%E2%80%9COutside_the_Box_Should_you_take_a_loan_from_your_401k%E2%80%9D\"><\/span>&#8220;Outside the Box: Should you take a loan from your 401(k)?&#8221;<span class=\"ez-toc-section-end\"><\/span><\/h1>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\"><span class=\"ez-toc-section\" id=\"4_ways_to_make_borrowing_from_your_retirement_account_less_risky\"><\/span>\n  4 ways to make borrowing from your retirement account less risky<br \/>\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\">\n<div class=\"article__side\">\n<div class=\"container--sticky not-active\">\n<div id=\"cx-next\" data-nosnippet>\n              <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap crawler\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0001163449\" role=\"document\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<div data-layout=\"\n                inline\" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetArticleReader\n              \n              inline\n  article__inset\n          article__inset--type-InsetArticleReader\n              article__inset--inline\n  \"><\/p>\n<div class=\"media-object-article-reader\">\n<div class=\"audioplayer\" data-sbid=\"WP-MKTW-0001163449\" role=\"region\" aria-label=\"Listen to Article\" tabindex=\"-1\" id=\"articlereader\" data-show-title=\"false\" data-theme=\"wsj-article-reader\" data-show-header=\"false\" data-show-subscribe=\"false\" data-ads-enabled=\"true\" data-save-publication=\"false\">\n        <\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       When we moved to Pennsylvania in 1996, I wanted to buy an old house. After months of looking, we found a stone farmhouse close to my new job and in a good school district. There was just one problem: We didn\u2019t know if we could afford it.<\/p>\n<p> We hadn\u2019t been able to sell our home in Maryland, so we didn\u2019t have any home equity to bring to the table. When our real-estate agent saw the asking price, she declined to show us the place because it was out of our price range. She wasn\u2019t wrong.<\/p>\n<div class=\"paywall\">\n       We drove over to look anyway. It was a stone house with big mature trees. A light snowfall made the property look like a\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.google.com\/search?q=currier+and+ives+print+of+country+home+in+winter&amp;rlz=1C1CHBF_enUS912US912&amp;sxsrf=ALiCzsbv1_LJdPxwP7FFDQc6wY_hlzhrjg:1659125595218&amp;source=lnms&amp;tbm=isch&amp;sa=X&amp;ved=2ahUKEwismva99J75AhV2j4kEHev4CSkQ_AUoAnoECAEQBA&amp;biw=1536&amp;bih=722&amp;dpr=1.25#imgrc=EMjkKZPbj6HpmM\" class=\"icon none\">Currier &amp; Ives<\/a>\u00a0print. Our kids ran around the yard, jumping in the creek out front. We had to drive home to get our 7-year-old son into dry clothes. But in just a few minutes, we\u2019d fallen for the place.<\/p>\n<p>From the visit, I got an idea for how we might afford the property. It had a small cottage, separate from the main house, which might provide\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/money-guide\/rental-properties\/\" class=\"icon none\">rental<\/a>\u00a0income that we could then use to help cover the mortgage. We still needed a large down payment, however. But I also had an idea for where to get that money. I\u2019d borrow from myself.<\/p>\n<p><strong>Read: <\/strong>U.S. gains 315,000 jobs in August. Labor market still strong but shows sign of cooling.<\/p>\n<p>First, I\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/money-guide\/trustee-to-trustee-transfers\/\" class=\"icon none\">rolled<\/a>\u00a0an IRA into my new 401(k) plan at work. Once it was transferred, I\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/money-guide\/loans-from-401k-plans\/\" class=\"icon none\">borrowed<\/a>\u00a0the maximum allowed from the plan\u2014$50,000. I\u2019d have five years to repay the loan through automatic payroll deductions. The interest rate was the prime rate plus 1%, as I recall.<\/p>\n<p>Plan loans are the most popular 401(k) feature\u2014after the employer\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/money-guide\/matching-contributions\/\" class=\"icon none\">match<\/a>, that is. At any given time, one worker in eight has a 401(k) loan outstanding. Because you\u2019re borrowing from your own savings, you don\u2019t need a bank\u2019s <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>roval. It\u2019s also easy to apply. Often, you just fill out an online form or talk with a phone representative.<\/p>\n<p>There was still one hitch, however. Borrowing from the 401(k) went against the advice of my\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/2021\/12\/the-future-seen\/\" class=\"icon none\">new employer<\/a>, Vanguard Group. It wasn\u2019t a strict prohibition. Vanguard does allow loans from its 401(k) plan. But the company\u2019s stated position was that money saved for retirement should be used only for retirement.<\/p>\n<p><strong>Read:<\/strong> <a rel=\"nofollow noopener\" target=\"_blank\" href=\"http:\/\/I%20took%20Social%20Security%20at%2062%20and%20now%20regret%20it.%20Is%20there%20a%20way%20to%20increase%20my%20Social%20Security%20benefit?\" class=\"icon none\">I took Social Security at 62 and now regret it. Is there a way to increase my Social Security benefit?<\/a><\/p>\n<p>This argument has real merit. It\u2019s hard enough for many Americans to amass enough for retirement. We tend to start saving later in our careers. Many workers also don\u2019t set aside enough each month. Why take money out of an account that may already be too small?<\/p>\n<div id=\"cx-membership-tile\"><\/div>\n<p>I knew that I was a good saver, contributing as much as I could to the plan. At the rate I was going, I didn\u2019t think there would be a shortfall at retirement. I didn\u2019t want to miss out on other goals. Buying a nice house in a good school district would make my work feel more rewarding.<\/p>\n<p>Vanguard had other, more specific reasons to counsel workers against borrowing. The money would be \u201cout of the market\u201d until it was paid back. This meant I would miss out on gains if there was a run-up in stock prices. But by the same token, I might avoid a loss if share prices happened to drop while I had a loan outstanding. This was a bit of a tossup because it depended on timing.<\/p>\n<p>Vanguard\u2019s strongest argument was that some borrowers can\u2019t repay their loans, usually because they lose their job. This can set off a financial avalanche. Any remaining balance comes due in full, usually within 60 to 90 days, depending on plan rules. If the borrower can\u2019t make the balloon payment, the unpaid balance is subtracted from the borrower\u2019s retirement savings. This is reported to the IRS as a taxable distribution, subject to income taxes and usually a 10% early withdrawal penalty.<\/p>\n<p>Under this worst-case scenario, you could lose your job, default on the loan, lose a chunk of your savings and then owe the IRS money. Approximately $6 billion in 401(k) savings are lost this way each year, according to a 2015 estimate by\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/repository.upenn.edu\/cgi\/viewcontent.cgi?article=1084&amp;context=prc_papers\" class=\"icon none\">researchers<\/a>\u00a0from Peking University, University of Pennsylvania\u2019s Wharton School and Vanguard. Their estimate was higher than that found in previous studies.<\/p>\n<p>I could imagine a\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/money-guide\/fat-tails\/\" class=\"icon none\">black swan<\/a>\u00a0event like this occurring, just not to me. Like most people, I had faith in \u201crecency\u201d\u2014that the current conditions I enjoyed would flow seamlessly into the future. I felt confident that my job was safe and my health would remain good.<\/p>\n<p>That doesn\u2019t always happen, of course, but everything worked out fine for us. As I look back, I realize that I\u2019d taken a big gamble that luckily turned out OK. Yet I\u2019d probably do the same thing all over again in the same circumstances. Like the idea of borrowing from your 401(k)? Here are four suggestions to make such loans less risky:<\/p>\n<p><strong>Borrow infrequently.<\/strong>\u00a0I took just one loan from my 401(k) during my career. If you borrow, do it for something vitally important, and not for a luxury purchase or a vacation.<\/p>\n<p><strong>One at a time.\u00a0<\/strong>Some 401(k) plans allow workers to have more than one loan outstanding at any given time. Those who take out two loans or more have a higher rate of defaulting. They\u2019re often borrowing from Peter to pay Paul.<\/p>\n<p><strong>Not an emergency fund.<\/strong>\u00a0Workers who borrow from the 401(k) to pay the rent or make a car payment could benefit from credit\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.nfcc.org\/\" class=\"icon none\">counseling<\/a>. People who treat their 401(k) like an emergency fund are living too close to the edge.<\/p>\n<p><strong>Make sure your job is secure.<\/strong>\u00a0Before borrowing, think carefully about your employer\u2019s financial condition and your relationship with your boss. The most important thing by far is to not lose your job while you have a loan outstanding. If you can avoid that, things tend to work out OK.\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/institutional.vanguard.com\/content\/dam\/inst\/vanguard-has\/insights-pdfs\/22_TL_HAS_FullReport_2022.pdf\" class=\"icon none\">More than 90%<\/a>\u00a0of plan loans are repaid on time.<\/p>\n<p><strong>Learn how to shake up your financial routine at the <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/moneyfestival.marketwatch.com\/?mod=article_inline\" class=\"icon none\">Best New Ideas in Money Festival<\/a> on Sept. 21 and Sept. 22 in New York. Join Carrie Schwab, president of the Charles Schwab Foundation.<\/strong><\/p>\n<p><em>This column first appeared on <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/humbledollar.com\/\" class=\"icon none\">Humble Dollar<\/a>. It was republished with permission<\/em>.<\/p>\n<p><em>Greg Spears is HumbleDollar\u2019s\u00a0deputy editor. Greg is also a Certified Financial Planner certificate holder.\u00a0<\/em><\/p><\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>    <span>By<\/span><\/p>\n<div class=\"author  hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"Greg Spears\",\"subhead\":\"The Wall Street Journal\",\"list\":[]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\"><span class=\"ez-toc-section\" id=\"Greg_Spears\"><\/span>Greg Spears<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=%7B20C06575-04D4-B545-711C-0B99F3030252%7D&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;Outside the Box: Should you take a loan from your 401(k)?&#8221; 4 ways to make borrowing from your retirement account less risky When we moved to Pennsylvania in 1996, I wanted to buy an old house. After months of looking, we found a stone farmhouse close to my new job and in a good school&#8230;<\/p>\n","protected":false},"author":1,"featured_media":491673,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.mktw.net\/im-615985\/social","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-491672","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/491672","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=491672"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/491672\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/491673"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=491672"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=491672"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=491672"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}