4 Reasons to Borrow From Anywhere Other Than Your 401k

(don’t forget to checkout the video too)

There are a lot of common retirement planning mistakes that people make, and borrowing from your 401k could certainly be classified as one.

Often times situations arise where you are strapped for cash, but the 401k retirement plan should be your absolute last resort for some extra cash.

While you can typically borrow about 50% of your 401(k)s value, here are 4 reasons you should look elsewhere for that much-needed cash….

✅ Borrowing Pre-tax Money & Paying it back with After-tax money (double-taxation) 😫

Sure, all other loans are paid back with after-tax money, but your 401k was tax-deductible money to begin with, meaning you received a tax break when you contributed…

But, if you pay that back with after-tax dollars you are having to pay back about 25% (or more) of the original contributions you made just to get back to even 🤔

PLUS, the after-tax money you put back in WILL be taxed again when taken back out in retirement, meaning double-taxation and less retirement income.

✅ Lost investment opportunity

If you missed ONLY the best 10 days in the market over the past 30 years, you lost out on about 40% of the market growth….so if you’re not invested in the market, you’re likely to miss the best days.

It’s important to note that your investment strategy needs to change once you start taking income from your portfolio to protect yourself from the sequence-of-return-risk.

✅ Defaulting is painful 😖

If you default on the loan you will be subject to taxation at your current income tax rate AND a 10% penalty!

This means that if you are in the process of repositioning assets for a tax-free retirement you will be putting a big hole in that plan.

✅ If you lose your job or leave you have to repay quicker most of the time 😟

Usually you have 5 years to pay back your loan, but if you lose your job or leave you might have to repay that much quicker, making the possibility of a default more likely.

The bottom-line is that your 401k should be the LAST place you turn for a loan.

There are way better alternatives, especially vehicles like cash-value life insurance which allows for 0% loans that have absolutely NO penalties for taking money out (definitely a valuable resource for a tax-free retirement and for an early retirement).

Let’s chat 💬😎