The Expert Podcast

taking a loan from your four oh one K. fund plan may be a way to cover some short term expenses or pay down some debt but bear in mind there are some downsides to borrowing from your four one K. first of all may require that you stop making contributions and check with your plan to get to good legal advice to double check these things. but if you have to stop contributing to your plan that's going to eliminate your employer match. so borrowing may have a higher cost than just the interest rate on that loan. number two there may be some clauses in that loan that if you're separated from your company are you may have to pay back the loan immediately or have the fund to sell some of your securities and that could trigger additional taxes penalties well in excess of any interest rate you pay on the loan. another often overlooked clause and some plans is that if you borrow from your four oh one K. and the value of your stocks or your securities goes down they may be allowed or required to sell some of your securities to cover the collateral. if the balance of your securities is below the loan amount or below a certain ratio they may have to sell some of your securities and by doing that you they may lock you into a loss on those securities it may also trigger again taxes and penalty so borrowing from your four oh one K. could be a way to eliminate some debt or to cover some expenses but beware of the less than obvious cost expenses or risks in doing so. because if like you said if a stock market crash happens while you have this loan out or your employer down sizes or even cut your hours you may be liable for taxes penalties. more important you're gonna lose out on the appreciation of the market by not having the contributions so as a last resort a four one K. fun loan may be appropriate but double check and look at all the risks and look at the clauses in your particular plan because every plans a little bit different to see how that might affect your financial future.