Borrowing from Your 401(k) Plan Could Cost you $100,000’s of Dollars

On my program yesterday, I interviewed Pam Villarreal, policy analyst with the National Center of Policy Analysis. They have completed a project on the long-term effects of borrowing against your 401(k) plan. The results are disturbing.

They developed a 401(k) borrowing calculator that shows the long-term impact of borrowing from your 401(k) plan. Let me give you a good example:

$100,000 account balance
$10,000 borrowed
24 months pay-back
8% return on investments
Retire in 30 years

What was the difference in retirement savings? By borrowing $10,000 the retirement plan was short $229,445. There are many bad assumptions that are being made when borrowing from your 401(k) plan.

For a few good resources, check out their white paper on 401(k) borrowing. Also go check out the 401(k) borrowing calculator.

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