A 401(k) loan provides a viable option for individuals facing financial difficulties, allowing them to borrow against their retirement savings. The primary advantage is that borrowers pay interest to themselves rather than a bank, alleviating financial strain in emergencies. However, the risks are notable—should the borrower fail to repay, the loan may be treated as a distribution, incurring taxes and penalties. Therefore, while a 401(k) loan may offer immediate relief, individuals are urged to weigh the potential risks against alternative financing options before proceeding.
The benefit of a 401(k) loan is potentially having an easier time accessing your money and paying interest to yourself instead of a bank.
Consider the risks and alternatives before getting a 401(k) loan.
The drawbacks of a 401(k) loan include the risk of not being able to repay it and having it treated as a distribution.
With a 401(k) loan, you could borrow against your own money rather than struggling with poor credit for a traditional loan.
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