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If you have been diligently saving to your 401(k), you may have a nice sum of funds sitting pretty.
401(k)s are a company sponsored retirement account that is set up for you to contribute your income to be deferred and used during your retirement years. However, if life has been life-ing, you may need to access these funds before you retire. Consider taking a loan from your 401(k) to safely access these funds without penalty.
Now, you need to check specifics with your 401(k) administrator; however, most can borrow up to 50% of your 401(k) balance or up to $50,000, the lowest of the two.
There are a few important things to note:
1. Loan repayments are automatically deducted from your paycheck.
2. You may or may not be able to continue to save towards your 401(k) while you have an outstanding loan.
3. If you leave your job or get terminated, you have to repay your loan immediately.
4. Interest is typically lower than a personal loan.
Your reasons to take out a loan from your 401(k) may vary from paying for medical expenses, needing funds for the down payment of your new home, whatever the case may be, it is personal to you. If at all possible avoid those pre-distribution penalties.
Rianka R. Dorsainvil, CFP®️ is the Co-Founder and Co-CEO of 2050 Wealth Partners a virtual, fee-only comprehensive financial planning firm dedicated to serving first-generation wealth-builders, entrepreneurs, and thriving professionals. Rianka also hosts 2050 TrailBlazers, a podcast aimed to address the lack of diversity in the financial planning profession by engaging industry experts and leaders in conversation.
As an award winning successful, millennial Certified Financial Planner professional, Rianka offers a unique perspective not only on the current state of the financial service industry, but on how to stay relevant in an ever-changing world.
Rianka serves as a member of CNBC’s Digital Financial Advisor Council and CFP Board’s Diversity Advisory Group, is a Forbes Personal Finance Contributor, and has been recognized for her accomplishments and leadership within the industry by leading publications and organizations such as Investment News’ inaugural 2017 Women to Watch Rising Star and Wealth Management’s Ten to Watch in 2018. She has been published in PBS NewsHour, Forbes, USA Today, Black Enterprise, CNBC, Women’s Health, and more.