Let’s say that you decide you are going to hit the road and retire at 60, but you still have an outstanding 401K loan. If you have the cash to pay it back, then there is no problem, but what if you don’t? This means you will have to continue working until you pay off that loan. Depending on the size of the loan, this could take you years to accomplish. Or you can choose to pay those hefty tax fees and early withdrawal penalties the tax-man dishes out. There are no good choices here.
Want to Lose Even More Money?
Most 401K’s are invested in multiple funds. When you take a loan, part of the loan comes from each funding source. If your money is invested in 4 mutual funds, for example, they would withdraw ¼ of the loan from each mutual fund.
This means that the money you pulled out is no longer making you money. All the earnings from those missing funds are like flushing cash down the commode.
When you take a hard look at the fees, the possible tax consequences, and lost investment earnings, it’s pretty clear that you should simply say NO to a 401K and look to other sources to get yourself out of your cash shortage.
I am an extremely verbal person who excels (and profusely enjoys) writing and/or talking about anything and everything! I love writing... Did I mention that?