In a pinch and really need cash? If you’ve been paying in to a 401k account through your employer and have over one thousand dollars contributed and vested, you qualify for 401k loans. These loans are meant to help you out of a financial hardship. Whether it’s tuition that needs paid, your car broke down or you need to catch up on mortgage payments, a loan of this type can be just what you need when you can’t get money any other way.
Typically, you can borrow up to fifty percent of your vested balance from your 401k. Your vested balance is the amount of money that you have personally contributed to your 401k, not the money your company puts into the account for you. There are some restrictions with a 401k loan besides the fifty percent loan amount.
First of all, you can only borrow up to $50,000. The term of your loan repayment will be based on the actual amount you borrow. Since the maximum 401k loan term is five years, it’s probably a pretty good thing that this is the maximum amount which you can borrow. You’ll be paying the loan back through payroll deduction. This is something you must consider before agreeing to this advance.
Be sure you can afford to live on the lowered amount of your upcoming paychecks until your loan is paid off. Depending on how much you borrow from your account, 401k loans payback schedule is up to five years. Budget wisely so you don’t get in a bind again.
You’ll of course be paying interest on the amount you’ve borrowed from your account. The nice thing about this fact is that the interest will be rolled right back into your account so in essence, you’re borrowing money from yourself and paying yourself interest. A nice thing about 401k loans is the fact that don’t need to worry about credit checks.
One big thing to consider before making the jump and taking your 401k loan-if for any reason your employment with the company ends, you’ll have one of two things staring you in the face-you’ll have to pay the loan back in full right away or you’ll end up getting taxed on all money that you borrowed. This is a pretty big deal so think about it before you take the money.
If all of these terms work for you, 401k loans can be the answer to your current financial predicament. Make sure to read all of the fine print before taking the cash.
