{"id":2966,"date":"2022-12-01T16:13:09","date_gmt":"2022-12-01T21:13:09","guid":{"rendered":"https:\/\/www.thewealthguardians.com\/staging\/3023\/?p=2966"},"modified":"2022-12-01T16:14:16","modified_gmt":"2022-12-01T21:14:16","slug":"the-advantages-disadvantages-of-401k-loans","status":"publish","type":"post","link":"https:\/\/www.thewealthguardians.com\/staging\/3023\/the-advantages-disadvantages-of-401k-loans\/","title":{"rendered":"The Advantages & Disadvantages of 401(k) Loans"},"content":{"rendered":"

<\/p>\"\"Sometimes a 401(k) loan makes sense, but there are a lot of considerations<\/em><\/strong>\n

Tapping your tax-advantaged retirement savings seems like a desperate financial move and it\u2019s important to understand your 401(k) loans in terms of time, payback, and risk. The primary consideration should be to make sure what you stand to gain in the present justifies the risk to your future financial security.<\/p>\n

Many holders of 401(k)s do in fact tap their accounts. According to 401k.org, about 20% of Americans eligible for a 401(k) loan have one, with balances averaging close to $7,000.<\/p>\n

The amount of your loan usually starts at about $1,000 and maxes out at $100,000 (previously, it was $50,000 or 50% of your vested account, whichever was less, but that changed in 2020). While interest rates vary by plan, most common is the prime rate plus 1%.<\/p>\n

Unless you borrow to buy a home, you must fully repay most 401(k) loans within five years, often on a monthly schedule. Usually, you repay directly out of your paycheck on an after-tax basis and may repay all at once with no penalty. Generally you should consider a 401(k) loan only if you exhaust all other financial resources, including home-equity loans<\/p>\n

Advantages<\/strong><\/p>\n