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Ask Dave

Borrowing? Bad Idea

Borrowing against the 401k is a bad idea, Dave says. Yvonne and her husband should rent, rather than continue to buy houses.

QUESTION: Yvonne’s husband was transferred in his work, and they have three houses and $60,000 in debt. His 401k will be available to borrow against without hardship at the beginning of the year and they wonder if they should borrow against it. Bad idea, says Dave.

ANSWER: Being transferred doesn’t require that you buy a house every time you move. You need to rent. I would not borrow against a 401k. If you’re about to be foreclosed or bankrupted, cash the 401k out to stop that. But you’re not there, you just need to sell those houses quickly and then clean up your income out of your debt. If you borrow against the 401k and then leave the job, you have 60 days to pay it back or it will be considered early withdrawal, and the taxes and penalties will take your head off.