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Expert May 2010

Warning about 401k loans

happybride1022, on April 16, 2010 at 7:43 PM Posted in Planning 0 6

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Someone in another thread mentioned a 401k loan as an option to finance a wedding. If anyone is thinking about this be VERY CAREFUL!!! If you do a 401k loan, you can only payback 2 ways. Through payroll deduction or out of the 401k monies themselves. BUT if you use the 401k monies they will get all the tax penalties as an early withdrawal.

OTHER warning. If you get laid off or your company folds you might have to pay the balance of the loan off in 90 days. They said the only way to do that was take it out of the 401K and get the penalties. Even if I got the cash from another source to pay it off, I couldn't

I took out a 401k loan a few years ago to refi my house. Alomost ran into this problem when my company was about to close. THANKFULLY the company ended up restructuring and kept me on part time, so I am still on payroll deduction. Dodged a HUGE bullet there.

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6 Comments

Latest activity by ynna, on June 14, 2011 at 1:32 AM

Master June 2010
Sharon · on April 16, 2010 at 7:47 PM
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Yep, a lot of people don't realize if you get laid off you have to pay it back, you still have to pay the penalties. If you don't pay it off within the 90 days, then next tax time you'll have a huge tax bill!
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Expert May 2010
happybride1022 · on April 16, 2010 at 7:51 PM
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Yeah. They never told be this when I took out the loan! If I had known then! Only 18 more months and that sucker will be paid in full. Fingers cross that the job (& company!) is stable!
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Master July 2010
Kathy · on April 16, 2010 at 8:30 PM
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Yep, do not use a 401k for anything, other than its intended purpose. Plan administrators really need to be better at informing employees of all of the potential pitfalls. Happy to hear that your company stayed well...whew!
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VIP September 2010
He-Gives-Me-Butterflyz · on April 16, 2010 at 9:43 PM
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I believe you can borrow against it without penalty, unless you close the entire account, then you have to pay 10% (in NY anyway). It can be used for a down on a house and college expenses without penalty (again based on my work experience in NY). Though I ABSOLUTELY AGREE it's NOT a good idea to borrow against it to finance a wedding. Ever! Don't do it!
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Expert May 2010
happybride1022 · on April 17, 2010 at 3:55 PM
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What I found out is that you can borrow against it with out penality as long as you still have the job aor the company still has the account with the 401K company. That is when the problems start. In this economy, I think it is too risky to take the chance.
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Just Said Yes October 2017
ynna · on June 14, 2011 at 1:32 AM
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Each of us dream of a perfect wedding day but after the big day, we also want it to be continuously perfect without huge debt. A payday loan can help to finance our wedding transactions. Though I'm planning to marry six years from now, I already have an idea where to avail a better loan. I guess this will help us all.
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