Do you think lenders are conspiring to discourage people from borrowing from their 401K is?

It seems that financial and bank related websites all say it's bad idea to borrow from your 401k. I wonder if they think that's bad because it hurts lenders?

One of the most common arguments against borrowing from your 401K is that you would use after tax dollars to repay the loan, but isn't that what you do with savings or when you repay other kinds of loans?

Now, clearly it's better not to have borrow money at all, but sometimes there are expenses that require that. It seems to me there's a lender conspiracy designed to discourage people from borrowing against their 401k, and it's not honest.

6 Answers

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  • Joe
    Lv 7
    6 months ago
    Favorite Answer

    When you're borrowing from your 401(k), you're losing tax-deferred earnings. That's the real punishment.

    • Onlooker
      Lv 7
      6 months agoReport

      Best answer, but borrowing for something like a home improvement or education can yield earnings too.

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  • 6 months ago

    There are extra penalties for pulling money from a retirement account. In addition to the standard tax, you'd also be paying a 10% early withdrawal penalty.

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  • Judy
    Lv 7
    6 months ago

    You are imagining things. How do you figure it hurts lenders? .

    • Onlooker
      Lv 7
      6 months agoReport

      Borrowing from yourself is less profitable to lwnders than borrowing from a lender. Duh!

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  • Anonymous
    6 months ago

    Yes, it's a big conspiracy. Are you ready to storm Area 51 with the rest of the idiots?

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  • 6 months ago

    No. It's not just lenders that say this. It's also experts who do not have any incentive to discourage it -- and it's even those who make money from fees when someone borrows from a 401K. Even they discourage it -- even though they lose money by discouraging it.

    The reason that everyone says it, regardless of their own interests, is simple: It's true.

    The real problem with borrowing against a 401K isn't when it gets paid back -- it's when it doesn't. If someone loses their job, the loan ends one way or another. If they can't repay it immediately, then it converts into a taxable distribution, so the money doesn't go back into the 401K, but they have to pay a lot in tax (which they don't get back either), and often a 10% penalty as well.

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  • 6 months ago

    401k - are for retirement. Not for borrowing from. For that you have a savings account. Borrowing from one's 401k is a return killer. People that do this on a regular basis, end up with little in their 401k @ retirement. I would hope that practically everyone would discourage this.

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