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Ask Dave

Borrow Against Retirement

Dave warns Susan to NEVER take a loan against her retirement because it costs herself interest.

QUESTION: Susan has an opportunity to take a loan against her 401k and pay herself interest. Is that a good idea?

ANSWER: When you pay interest against your retirement, you cost yourself interest. If you leave the company (which you will, someday), the loan against the 401k is due within 60 days. If you don’t pay it off, they consider it an early withdrawal and you’ll get taxed and penalized, big-time. Never, ever borrow on your retirement. In an emergency like owing the IRS or facing foreclosure, you can withdraw some. You’ll still get taxed, but don’t borrow against it.