If you have money problems, borrowing from your 401(k) plan seems
like an easy answer. With low interest rates and immediate approval,
why not take funds from your planned retirement to use for today's
unexpected cash crunch?
In most cases, it's a bad idea. Shortchanging your plan will cost
you a fortune. You're losing years of tax-free compounding for every
dollar you borrow. If you leave your current employer, you will
probably be required to pay the loan back immediately. If you fail
to pay it back on time, hefty penalties and tax charges will take
a big chunk of your retirement savings -- money that also could
have been compounding for years.
Determine how much money you will lose by entering the information