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This post is part of a series where retirement expert Dan Solin offers simple answers to the ten toughest retirement questions. See all 10.
Q: What If I need to borrow from my 401(k) plan in an emergency?
A: The maximum you can borrow from your 401(k) plan is 50% of the amount vested, up to a maximum of $50,000 in any rolling 12 month period.
Your employer may place additional restrictions on your ability to borrow from your 401(k).
Whether or not you are permitted to take a 401(k) loan, it's generally a bad idea.
During the repayment period, there is less money in your account. If the market increases in value, your returns will be diminished.
If you leave your job, you will have to pay back the full amount of the loan. If you cannot repay the loan as required by IRS guidelines, then the loan will be treated as taxable income and a 10% penalty will be accessed.
If you have no other options, you should consider a loan from your 401(k). But it should be a last resort.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, June 24, 2008)
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