Do you need to borrow from your 401k plan? Know the easiest way
Let’s be honest: no matter how much one thinks about his future, there are times when life can get difficult and leave us with the urge to get extra money. Are you considering borrowing from your 401k plan? Avoid the haste to withdraw your funds, and find out!
At the crossroads, two roads
If you need the money from your 401k plan before retirement, you have two roads, says Forbes magazine: take a loan or make a withdrawal due to financial difficulties. But although they are equally valid, the first alternative could be more beneficial.
Why? With the December 2017 tax reform, which liberalized the loan repayment rules, this option became much simpler: up to $ 50,000 (or half of the funds, whichever is less) of the 401k can be requested. Then, the money with interest is returned to the account itself.
On the other hand, when making a withdrawal due to economic difficulties, the money can not be reintegrated and taxes must be paid for it. In addition, employees who resort to this alternative, are prevented from making new contributions to the 401k, for six months after the withdrawal, warns the publication.
Do not rush to take a loan
Make it easier, it does not mean you should take advantage of the 401k funds in advance and indiscriminately. If you wish to resolve your present situation without throwing away your future, consider borrowing from your account for the withdrawal, only in these cases, suggested by the Bankrate site:
• If you have no other resource, such as a home equity line of credit or a loan from a family member. A personal loan may be a smarter option than shrinking your 401k.
• If it is the lowest cost loan available. Taking money from the 401k can be a useful option for those who have trouble getting low-interest money, for example, for having a credit score that is too low, said Robert Gordon, financial advisor, to the portal.
• If you will use it for an intelligent investment. Under certain circumstances, borrowing from a 401k plan to buy a house, finance a business or move forward educationally may be worth it. Usually, the return period is usually extended for those who purchase a home.
Saving for retirement is essential for anyone wishing to ensure a comfortable future. For women, however, it would be key to start doing it how much earlier! Find out why, in this video: