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.
- JoeLv 76 months agoFavorite Answer
When you're borrowing from your 401(k), you're losing tax-deferred earnings. That's the real punishment.
- Casey YLv 76 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.
- JudyLv 76 months ago
You are imagining things. How do you figure it hurts lenders? .
- Anonymous6 months ago
Yes, it's a big conspiracy. Are you ready to storm Area 51 with the rest of the idiots?
- How do you think about the answers? You can sign in to vote the answer.
- StephenWeinsteinLv 76 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.
- exactdukeLv 76 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.