4 reasons to take out a 401(k) loan
It's for a smart investment
Under certain circumstances, borrowing from a 401(k) to purchase a home, finance a business or advance your education might be worth considering. The repayment period is often extended for homebuyers.
For example, Gordon had clients who had just moved to a new city and wanted to buy a house. They already had rolled over the 401(k) from a previous job into an IRA -- and you generally can't borrow from an IRA. So to get money for the down payment, they rolled money from the IRA into a new 401(k) and borrowed it back.
He cites another case in which an entrepreneur rolled money from an IRA into a solo 401(k) in order to take out money to invest in his business.
A 401(k) loan might also be useful for acquiring educational credentials needed to keep your job or advance your career, Gordon says. Just be sure that the piece of paper you are risking your retirement for is worth it.
"You've really got to be careful about where you invest those dollars," Gordon says."So if someone says, 'I want to get a professional management certification,' understand what the value of that is in the marketplace before you make that investment."