Yes, it's official that we are in a recession. These are certainly difficult times, but today I want to look at the pros and cons of borrowing from your 401(k). The spoiler alert is that there are far more cons than pros.
The pros are that you have access to money if you are in a tough spot. Some 401(k) plans allow you to borrow up to 50% of your vested account balance.
The cons are that some 401(k) plans don't even allow for loans. taking out a 401(k) loan may cause you to stop contributing to your 401(k) altogether, since you will be paying it back with a portion of your paycheck. You are essentially borrowing from Peter to pay Paul. If your company matches a portion of your contributions, you will lose out on that as well. If you cannot afford to pay it back, it becomes a taxable distribution with penalties if you are under the age of 59 1/2.
I recommend that you only borrow from your 401(k) as a very last resort. In addition, most people have suffered dramatic losses in their 401(k), so the amount that you will be able to withdraw is less today than it has been in the past.
Your 401(k) is one of the building blocks to a successful financial strategy. Treat it well and it will treat you well.
Wishing You Wealth in all its Greatest Forms,
Alex
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