If you're in need of money for an emergency you may be a little lost if you have no real fluid savings. If you're considering getting a loan have you thought about getting one from yourself? In the right circumstances you could tap into your 401k for equity!
If you're finding yourself short pressed for funds you may think you have very limited options for digging yourself out of an emergency. Likewise you may need money for a big purchase like owning a home but you don't have the money for the down payment. Have you considered borrowing the money from yourself? If you have a 401k you could borrow money from it in the right situation. This means instead of paying money and huge interest fees to a lender you'll be paying it to yourself! There are some strict regulations for it and only certain circumstances apply so here's what you need to know if you're considering.
First if your 401k is through an employer like most people you need to make sure they allow this. Ask human resources if you can't find it in the paperwork. Make sure to inquire about any fees or rules that go a long with it! Employers can impose their own restrictions, but the federal limit is that you can borrow half of your account balance. That is up to $50,000. You will also lose a lot of compounding interest in your account. The time you took finding good stocks to invest in could be less than worth it if you use all the money. Don't get any ideas about wasting it on things like vacations or junk.
How's your job security? The biggest risk of a 401k loan is loss of job. You'll have to repay within sixty days or face harsh penalties. Your company may even offer free consulting for this type of situation for you to decide whether a 401k loan is right for your situation. If you're in danger of bankruptcy it's safer to keep your money in your 401k as it is normally protected from this type of legal proceeding.
You can borrow for as long as 5 -30 years. So it is feasible to use to purchase a home. As long as you familiarize yourself with the risk and penalties involved. Keep in mind even though you're borrowing from yourself that lenders could few a 401k loan as debt. This could effect you for future traditional loans so you should keep that in mind.
Other reasons you'd be allowed to borrow from your 401k include qualified medical expenses, college tuition costs , or funeral fees for a family member.
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