Kirk Chisholm, Wealth Manager
It depends on what it is used for. You will pay the interest back to yourself. The question I have for you is why are you contributing 10% of your income if you need to take a loan from it? Not that I object to your commitment to saving for retirement, but unless it is a short term need, you might want to reconsider. Loans are a nice feature to have on a 401k plan, but it would be better to have a reserve rainy day fund set up so that you don't have to borrow from your retirement.If you are considering the loan in order to make an investment, you might want to consider looking at a self directed IRA. Did you know that you can invest in virtually any asset in your IRA or 401k? This includes real estate, private mortgages, horses, private company stock, intellectual property, tax liens, crowdfunded peer-to-peer lending, farmland, and more.
If you want to learn more about self directed IRAs and how they can help you, this is a good resource.
I hope you found this helpful
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Charles J. Stevens, Principal, evergreen financial, LLC
Do you hurt yourself?
Historically, the Dow Jones Industrial average has returned 7+ per cent annually over a long span of years. If you borrow from your 401(K) account, what is the interest rate you will pay on the loan? 2.5% compounded. Over the term of the loan, what is the loss? Forecast what the Dow will do over the term of the loan and I'll tell you what the penalty is.
The unknown is this: if you were an employee at Caterpillar Tractor and you got your separation notice this week, your loan comes due immediately or the outstanding balance is taxable income at separation. Is this an investment risk or tax risk you are willing to take?
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