The Economics of Borrowing from Your 401(k)

The Economics of Borrowing from Your 401(k)

When times are tough, that pool of dollars sitting in your 401(k) plan account may start to look attractive. But before you decide to take a plan loan, be sure you understand the financial impact. It's not as simple as you think. 

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Borrowing From Your 401(k): A Financial Sin

When we put money into our retirement accounts we do so for a specific purpose: retirement. All the money you have funneled into your 401(k) is supposed to buy you that dream retirement lifestyle you spent your entire life working toward. But unfortunately, more and more people are finding that life can throw them curveballs that, in turn, can throw off their financial plan. Often times, when people find themselves in a financial bind, they find it hard to ignore that shiny apple hanging in front of them in the form of their 401(k).
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The Student Loan Bubble

Call it a bubble, call it a catastrophe, call it whatever you’d like, but student loan debt has become an increasingly large burden and more and more people are starting to notice. The issue was most recently highlighted by our largely stagnant Congress who allowed the subsidized loan rates for undergraduates to double to 6.8% because they were unable to agree on how to keep it at 3.4%.1 With student loan debt now topping $1 trillion,2 young Americans have been effectively barred from investing in other areas of the economy, the hardest hit sectors being home ownership, savings, and retirement investments.3 These staggering debts paired with decreased investment will slowly but surely drag down the rest of the American economy, and create “not just a problem for individual borrowers but a problem for all of us.”4

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