Is it OK to borrow against your company 401k?
I want to know if it's ok to borrow against your 401k. I invest at 3% and my company matches me dollar for dollar. I want to use it for Christmas on my children. I don't really know the rates and little naive. So can anyone help out. Thank you.
- BigNorskLv 41 decade agoFavorite Answer
The most important gift you can give your children is to instill the need to live within your means, save for the future and that happiness isn't some junk bought from the store that is quickly forgotten.
This is not a we won't have Christmas this year, but have it on a very strict budget. If there is just no money between now and Christmas to be had, you can't afford to pay back what you borrow either.
Then for next year, you start the family on a Christmas savings plan. Have everyone make contributions, things like pocket change, and so on. Keep track of accounts and such. Then next year you give each child everything they've saved plus a portion of what the family has saved (that would mean the parents) with one thing. Not over half the total can come in the last three months of the year.
Many if not most people go through life moving and reacting only to the closest crises, never getting ahead, never ready for even the predictable things. If you use this event to teach your children how to get off the crises treadmill, plan for their future and live within their means, you will materially improve their lives and satisfaction with life. What a wonderful gift.
- Anonymous1 decade ago
It's fine to borrow against your 401K, I've done once before and there was no penalty. They automatically take the money out of your pay check each week to pay it back. And the company you work for can not do anything to you for doing this. It's your money you've invested. You have the paper work for the 401K company your dealing with they should have a phone number that you can call and they will tell you everything that you need to know to do this. It works out great and the money does go back into your account. You pay it back week by week.
It's not a really good idea to do this, but I was personally in a major situation and I had no choice at the time. But it was a one time deal and all my money is back without a problem. And the company can not legally do anything to you for this. I know at least 10 or 12 people who have done this at different companies. My brother works for a 401K company and you can not get arrested unless you do something illegal with the money. You also can not get sued, that just doesn't happen my brother has 27 years experience in this business. I was a boss for a company for 10 years and no one every had a problem doing this.Source(s): Personal Experience.
- jmorgeLv 61 decade ago
it really depends on how your 401k plan is setup. Most 401k will allow you to borrow against your balance (generally the maximum you can borrow is 50% of what you have in your account). This can be done without penalty or tax issues. But it's also not a smart thing to do, especially just for buying Christmas gifts. Some things you should be aware of. (a) many 401k's charge a fee to process the loan. For example they may charge $125 to process the loan, regardless of the loan amount. So if you borrow $500, you have to pay $125 just to get your $500. That's not good! (b) you are losing out on any interest your funds would have earned (c) if you leave your job, the loan amount has to paid back in full, immediately. You cannot continue to make monthly payments on it. It's due in a lump sum. If you don't have the money, it's treated as an early withdrawl and subject to taxes and penalties. (d) you're paying income taxes twice on the money. The money you use to pay it back is taxable income (ie: you've already paid your taxes on the money you use to pay the loan back. Then when you retire and start to withdraw your money, you have to pay taxes on it (again). So in effect you're paying taxes twice on your own money.
Yes there are times when you may need to borrow money from your 401k but to do so just for christmas presents is not a good reason.
- 1 decade ago
If at all possible, you should avoid borrowing against your 401K except when in dire need. I believe that most have rules for borrowing, i.e. down payment on a house, medical, etc. And you will only be able to borrow what you have contributed, not what the company has contributed. I have a very limited budget this year, and the kids will just have to understand.
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- Ken ELv 61 decade ago
It's best to never borrow Christmas. Christmas will be gone in a flash but all the strain of paying your loan plus the interest and the interest on the interest will seem to last forever. It's possible to have a very nice,warm,loving and memorable Christmas without all the knick knacks.
- Anonymous1 decade ago
I believe there is a penalty for doing so. You will also be taxed on this at the end of the year. Its not a big deal but I think you have to fill out some forms and stuff to get it, like you might have to show hardship in order to get it. If your gonna do it, you need to do it now to get it in time for Christmas.
- 1 decade ago
NO, you can get fired sued and even arsted. This has happened in our company and we fired and were almost going to sue. Try talking to your boss dont do it with out asking