When you need extra cash, borrowing from your retirement plan may seem like the simplest option. There’s no credit check, and you’re borrowing from yourself.
Taking a loan from your account is a big financial decision. Here are four things to consider before you borrow:
If you stop working or change employers, you may be required to repay the outstanding balance of the loan when you leave.
If you don’t make your loan repayments on time, your outstanding balance will be taxed as income. And you could be hit with a 10% early withdrawal penalty.
Interest on your loan isn’t tax-deductible.
Your retirement savings will become your retirement income. Do you really want to give your future a pay cut? That may happen if you reduce your account balance with a loan. And it may be harder to save while you’re paying it back.
This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.