When Is It OK To Take A Loan From My 401(k)?
A 401(k) is a benefit offered by many employers, whereby a certain amount of money is put aside each paycheck into a retirement account for the employee. Most plans are set up where the employee puts a part of their pay into the account each pay day, and the employer either matches what is put in or has a set amount deposited into the account. The funds are generally invested, so they grow over time, the end result being a nest egg for retirement. The money you designate for deposit is generally considered a tax deduction, so you also get the benefit of paying fewer taxes by making regular contributions to your company’s 401(k) plan. Withdrawals from a plan are permitted at retirement age, but can be taken earlier under certain circumstances.
One circumstance where an early withdrawal from a 401(k) is common is where the participant is experiencing financial hardship. Your plan administrator will be able to tell you the ramifications of taking an early withdrawal, which usually include tax consequences and the inability to participate in the plan for a certain time frame after taking money out for hardship purposes. Other instances where taking money out, either outright or in the form of a loan are:
- First time home buyers.
- Home repair.
- Medical expenses.
If you do need extra cash and have it available from your 401(k), it is typically more advisable to take a loan than to take an outright distribution. A loan does not have the same tax implications as an early distribution, and in most cases you can still contribute while repaying the loan. However, if the relief you need is greater than what a loan can provide, you should consider filing bankruptcy instead. Bankruptcy offers long term relief rather than a short term fix, and does not require repayment of a loan, other than the loans you are currently repaying. Even then, you get to decide which loans to repay and which to eliminate, but that choice also requires you to pick which pieces of collateral you want to keep. Bankruptcy is a very viable solution for many distressed consumers, and we can give you all the details you need to decide if this is the right choice for your finances.
For more information about bankruptcy, contact us at www.DsouzaLegalGroup.com. We will help by coming up with solutions that work for you.