A 401k loan is not an option if you are serious about your retirement planning and provision.
Tapping into your 401k early is actually easy. There's very little paperwork required. No credit check is required and you need not motivate the reason for the loan. Granted, during a crisis it might be your cheapest and quickest way to get funds, but it may have devastating consequences in the longer term.
Borrowing against your 401k plan is no different from borrowing from any retirement provision plan. However, it puts invisible brakes on your provision plan and may seriously bite you in the back when you approach retirement.
Every retirement provision plan sets it's specific loan benefits and restrictions:
If you stop making contributions to your 401k plan while you repay your 401k loan, you'll be creating an even bigger hole in your retirement savings. Some 401k plans have a rule that you can’t contribute to your 401k until you've completely repaid the loan. So, you would be missing out on the opportunity to increase your retirement savings. If your employer matches contributions, that’s even more money you won’t have when you retire.
Asset leakage is the learned term used for the long term financial loss suffered when you loan against your retirement provision plan. It is in your best interest to avoid this subtle leakage.
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