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401K Loans for Emergencies

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  • 401K Loans for Emergencies

    Retirement accounts are set up to allow people to save for retirement. Funds in these accounts are intended to not be touched until retirement. However the IRS has allowed for a few emergency instances in which 401k assets can be used for non-retirement purposes. These include emergencies, first-time home purchases, and a few others.

    How do You Get a 401k Loan?

    Talk to your 401k plan administrator to find out your plan's rules about 401k loans. Most plans will allow you to borrow up to 50% of the value of your loan. You will have to sell some of the securities in your account if you don't have cash sitting in your account. Then you will have a repayment plan. You will pay interest to your account until the loan is paid off.

    What to Watch out for

    Be sure to ask about the rules of repayment. Many 401k loans require you to pay back the balance in full within 30 days of being terminated from employment. So be prepared if you think you could resign or get laid off. Also, be aware that even though you pay interest to yourself, it is not always a great idea. When you take out a 401k loan you give up the opportunity for your investments to grow during the loan time.

    Use only for Emergencies

    A 401k loan can be a good source of emergency funds, but it should be used only in very dire circumstances. 401k assets should be used very carefully. It is best to have a separate emergency savings fund to cover unplanned family or personal emergencies.


    Article Source: http://EzineArticles.com/5843788
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