Olde Hornet
Well-Known Member
My answer is no!
The basics
First, not all 401(k) plans allow loans. Even if yours does, every 401(k) plan limits how much you can borrow: one-half of the vested value of your account or a maximum of $50,000, whichever is less. If both you and your spouse have $100,000 or more in separate accounts, you’re eligible to borrow $50,000 each, for a total of $100,000—a big chunk toward a down payment.
The repayment period is typically five years, although that can vary by plan and may not apply if the loan is used to purchase a home. Repayment options usually include regular deductions from your paycheck or a lump sum by a specific date, and there’s no penalty for repaying the loan early.
In general, I recommend you pay back the entire amount as soon as possible, preferably in three years or less. No matter which option or time frame you choose, it’s important to create and stick to a repayment schedule.
Revisit your budget and make this a line item. If you miss even one payment, the loan could be recategorized by the IRS as a “distribution,” which means you would have to pay federal income tax on the loan amount, plus a 10% early withdrawal penalty if you’re under age 59½.
The basics
First, not all 401(k) plans allow loans. Even if yours does, every 401(k) plan limits how much you can borrow: one-half of the vested value of your account or a maximum of $50,000, whichever is less. If both you and your spouse have $100,000 or more in separate accounts, you’re eligible to borrow $50,000 each, for a total of $100,000—a big chunk toward a down payment.
The repayment period is typically five years, although that can vary by plan and may not apply if the loan is used to purchase a home. Repayment options usually include regular deductions from your paycheck or a lump sum by a specific date, and there’s no penalty for repaying the loan early.
In general, I recommend you pay back the entire amount as soon as possible, preferably in three years or less. No matter which option or time frame you choose, it’s important to create and stick to a repayment schedule.
Revisit your budget and make this a line item. If you miss even one payment, the loan could be recategorized by the IRS as a “distribution,” which means you would have to pay federal income tax on the loan amount, plus a 10% early withdrawal penalty if you’re under age 59½.