Reply to Explain to me why it's a bad idea to borrow against your 401k?

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Reply to "Explain to me why it's a bad idea to borrow against your 401k?"

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[quote=Anonymous]There are two costs to consider.  First, is the short-term costs of "borrowing" the money and then paying it back to the 401K.  But second, and much more significant is that when you take the money out, it is no longer there earning your retirement.  One of the ways that a retirement fund makes you more money is by putting money in early, you get a compounding interest over decades instead of over years.  For the money that you take out, you are not only halting your retirement, you are decreasing the end result by the compounding effect of the interest over 20-30  years of your career.  You can put a smaller amount in now and have a bigger effect than putting in a larger amount later.  For example, $1K saved when you are 25 years old, will compound and be worth more than $2K put in when you are 50 years old.  And if you need a certain amount in your 401K to retire at the lifestyle that you want, you may have to make very costly "catch up" payments in your later years to get your 401K to the level you'll need to sustain your family after retirement.

Personally, I think that this has to be a last ditch solution when you've run out of all other options because the cost can be dramatic depending on how much you are saving and how far you are away from retirement.[/quote]

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