Quick Answer: Taking a 401K loan for a car purchase in one’s late 50s is not recommended because it uses retirement funds to buy a depreciating asset and may trigger tax penalties for pre-59½ withdrawals. Instead, couples should explore low-interest auto loans or dealer financing with 0% rates to avoid hindering retirement savings.
“Dear Paul,
Work car is on its last leg..Husband needs transportation 45 miles to work and 48 back. Need dependable car. Husband wants to go into 401 K to get money for car….wife does not…we are in our late 50s and feel we should not touch it.
Should we borrow money from 401 K to buy a dependable work car ???
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Dear Mickie,
By tapping your 401k to buy a car you are hindering your retirement by purchasing a depreciating asset.
My suggestion is to check into getting a very low interest rate loan [sometimes with 0% from some dealers – just make sure you negotiate the purchase price first] – many times they are available with little to no money down.
If you withdraw from the 401k, not only are you robbing from your retirement, you are creating unnecessary taxes and tax penalties for what is known as a Pre-59 ½ [unless you are older, obviously] withdrawal. Just curious, how is your husband’s trip home from work longer than his trip to work? I wish you the best with this difficult situation.
*The above is purely informational and should not be considered investment advice. Please consult your own financial and tax advisors.
Best regards,
Mr. Bennett is a Certified Financial Planner™ professional (CFP®), Chartered Financial Consultant (ChFC®), Accredited Investment Fiduciary™ (AIF®) and Managing Partner of c5 Wealth Management, LLC. He holds a Master of Science in Finance (MSF) with Honors from Indiana University – Kelley School of Business and a BA from the University of Florida. He is currently pursuing his PhD in Economics from SMC University. Mr. Bennett has completed the Advest Institute’s advanced program on portfolio analytics and behavioral finance at Harvard University.
He was recently recognized by Washingtonian Magazine as a Top Financial Advisor and Kiplinger’s Personal Finance Magazine, the Journal of Accountancy and the American Bar Association Journal as Who’s Who of Virginia Certified Financial Planner™ professionals. In addition, he has also been recently selected by the Consumers’ Research Council of America as one of “America’s Best Financial Planners”. He is a current contributor to the Rydex Advisor Benchmarking Index. He is quoted often in the press, has been featured on CNNRadio.com and has contributed to various publications such as U.S. News and World Report, Boomerater.com, Advisor Today, Dow Jones News, Financial Advisor Magazine, Financial Planning Magazine, Investment News, The Washington Business Journal and The Washington Times.
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