4 reasons to take out a 401(k) loan
Taking out a 401(k) loan is like cutting off your own limb. Most advisers would call it an act of fiscal insanity, unless you're genuinely trapped with no other financial lifeline available.
"Many people don't have enough saved for retirement in the first place, and when they take their 401(k) out of the equation and borrow the money -- typically up to 50 percent of their balance -- then that money is no longer working for their retirement needs," says financial planner Bob Mecca, president of Robert A. Mecca Associates in Prospect, Ill. "And the money is no longer growing, compounded and tax-deferred."
Of course, it's best to avoid such a moment of desperation in the first place. Having an adequate emergency fund in reserve is a good way to steer clear. But let's say you're out of cash and you seem to be out of options for acquiring what you need. In this short list of scenarios, a retirement account loan might make sense.