Definition
A loan you can take out from your 401K balance. You pay yourself back with interest, but be cautious of fees and rules if you leave your job or don’t repay on time.
What to consider
- Think twice before borrowing from your retirement—consider the long-term growth you might miss.
- Make sure you have a solid plan to pay it back on time.
- Weigh the immediate cash need against the cost of losing potential investment gains.
Real world scenarios
- Ria faces an unexpected medical bill and considers borrowing from her 401K to avoid high-interest credit card debt. She compares repayment terms and decides the 401K loan might be a better short-term solution.
- Jacob repays his 401K loan early by making extra monthly payments. This strategy minimizes the time his investments stay lower and restores his retirement balance faster.
- Alicia reviews alternative financing options before taking a 401K loan. After weighing pros and cons, she chooses a personal loan instead to keep her retirement savings fully invested.
Related terms
Related Playbooks
Get instant access to all our expert playbooks and 1-1 financial coaching when you join the Bolder Money community. Learn more here.
