4 reasons to take out a 401(k) loan

Your job is secure
Your job is secure |

Your job is secure

If you're thinking about borrowing from your retirement account, make sure that you're happy with your employer, the boss is happy with you and there are no layoffs imminent, Gordon says. If you leave your job, you'll generally be required to repay the loan balance within 60 days. Plus, the money you took out now gets tagged as an early withdrawal, so you'll incur the 10% penalty and owe income taxes on the amount.

Also take into account your projected income over the course of the normal 5-year loan repayment period. Payments on 401(k) loans usually are taken directly out of your paycheck -- on an after-tax basis -- so you'll want to be sure you can live without that money from your take-home pay.

Mecca says that when clients ask him about the advisability of a 401(k) loan to raise capital, he won't even go there unless they are confident of their job security.

"If there is hesitation on their part, then I try and look elsewhere," he says.


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