The bad news is out, more people are raiding their 401(k)s for cash to address current financial needs.
While the ability to reach into a 401(k) might be perceived as a good thing, after all isn’t it our own money, it’s not.
When you steal from your 401(k) you are really taking money from your 81 year old self who will need it, and maybe even just to be warm and fed.
The Wall Street Journal is reporting today that in 2010 about one in seven workers took money from their 401(k) retirement accounts. That number is up from 2009.
The loan can stand only as long as you are employed by the company. Lose your job, and the full balance is due, within 60 days, or it is counted as an “early withdrawal,” and the borrower will have to pay income tax and a 10% penalty on the balance if he or she is younger than 59½.
“A loan from your 401(k) has the potential to leave deep, deep wounds,” says Thomas Muldowney, a financial adviser with Savant Capital Management in Rockford, Ill.
If it is available, a home-equity line of credit may be a better option: the rates are a little higher, but the interest may be tax-deductible, and it isn’t tied to the borrower’s employment. – Source