{"id":3496,"date":"2014-03-19T06:07:50","date_gmt":"2014-03-19T13:07:50","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=3496"},"modified":"2014-03-19T06:07:51","modified_gmt":"2014-03-19T13:07:51","slug":"hurdles-retirement-borrowing-funds-401k","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/retirement\/hurdles-retirement-borrowing-funds-401k\/","title":{"rendered":"Hurdles to Retirement \u2013 Borrowing Funds from Your 401k"},"content":{"rendered":"

\"retirement<\/a>Saving for retirement<\/a> is a long process. Taking it one step at a time is the only way to accomplish success.\u00a0 However, you can make a poor decision that compounds itself over time.\u00a0 Taking a loan from your 401k is one of those decisions.<\/p>\n

The American dream \u2013 own a house.\u00a0 Emotionally this makes sense. We all want a beautiful place to call our own.\u00a0 But the allure can sabotage our reality.\u00a0 Owning a home is not for the faint of heart.\u00a0 It takes a lot of work and a lot of money to keep up with.<\/p>\n

Recently I had a client approach me about buying a house in Denver, Colorado.\u00a0 They recently sold a house and are currently renting. The emotional draw is they want a second bathroom for their child.\u00a0 They want a big enough space for the child to feel comfortable.\u00a0\u00a0 All these are well-intended ideas.<\/p>\n

But to get there is another story.\u00a0\u00a0 This client was spotting homes in the neighborhood she was renting in. The allure to visit an open house was great.\u00a0 She entered and found something that she liked. She inquired with her realtor and began the process. She was teamed up with a mortgage broker.\u00a0 The broker found her a mortgage where she could put down 3.5% of the value of the home.\u00a0 On a side note \u2013 I thought we went through poor management in the housing downturn.\u00a0 I guess we did not learn our lesson!<\/p>\n

However she could not come up with that money so her mortgage broker suggested taking a loan from her 401k.<\/p>\n

This is when I came into the picture.\u00a0 NO! You should not take a loan from your 401k <\/a>to make the down payment on your home<\/i>.<\/strong><\/p>\n

This is wrong on so many levels. First let\u2019s look at the mechanics. Pros, she has the money to take.\u00a0 She has 5 years to pay off this loan at a low interest rate and the interest accrues on her behalf.<\/p>\n

The first downside to this approach is that you lose the opportunity to grow your investment.\u00a0 If you leave your job, your employer generally requires you to pay the loan back within 60 days. If you do not succeed in paying the loan off in 5 years, then the IRS is notified and charges you a 10% penalty <\/a>and taxes on the amount withdrawn.\u00a0 Many plans prevent you from contributing until the loan is paid off. So not only do you miss out on the returns on the money you withdrew, but on future payments as well.<\/p>\n

Most importantly, this creates a bad precedent.\u00a0 If you have to withdraw from your retirement account you are probably not paying yourself first.<\/p>\n

What I found most disheartening is that the mortgage broker was making this recommendation. Clearly they were not following a fiduciary<\/a> standard, to place the client in the best position. This mortgage broker was putting himself or herself in the most favorable position.<\/p>\n

If the client did not have a few thousand dollars saved for the down payment, then how were they going to have enough when the plumbing went bad or there was something wrong with the roof?\u00a0 Or what if her child has an emergency?\u00a0 She would not have enough to pay for these expenses.<\/p>\n

To learn more about James Cornehlsen, view his Paladin Registry profile<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Saving for retirement is a long process. Taking it one step at a time is the only way to accomplish success.\u00a0 However, you can make a poor decision that compounds itself over time.\u00a0 Taking a loan from your 401k is one of those decisions. The American dream \u2013 own a house.\u00a0 Emotionally this makes sense. We all want a beautiful place to call our own.\u00a0 But the allure can sabotage<\/p>\n","protected":false},"author":27,"featured_media":3502,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[117],"tags":[],"class_list":["post-3496","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-retirement"],"yoast_head":"\nHurdles to Retirement \u2013 Borrowing Funds from Your 401k<\/title>\n<meta name=\"description\" content=\"Saving for retirement is a long process. 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However, you can make a poor decision that compounds itself over time, like taking a loan from your 401k.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.paladinregistry.com\/blog\/retirement\/hurdles-retirement-borrowing-funds-401k\/\" \/>\n<meta property=\"og:site_name\" content=\"Paladin Registry Blog\" \/>\n<meta property=\"article:author\" content=\"https:\/\/www.facebook.com\/james.cornehlsen\" \/>\n<meta property=\"article:published_time\" content=\"2014-03-19T13:07:50+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2014-03-19T13:07:51+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.paladinregistry.com\/blog\/wp-content\/uploads\/2014\/03\/retirement-hurdles.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"620\" \/>\n\t<meta property=\"og:image:height\" content=\"360\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"James Cornehlsen\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@AUMinaBox\" \/>\n<meta name=\"twitter:site\" content=\"@PaladinRegistry\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"James Cornehlsen\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/retirement\/hurdles-retirement-borrowing-funds-401k\/\",\"url\":\"https:\/\/www.paladinregistry.com\/blog\/retirement\/hurdles-retirement-borrowing-funds-401k\/\",\"name\":\"Hurdles to Retirement \u2013 Borrowing Funds from Your 401k\",\"isPartOf\":{\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/retirement\/hurdles-retirement-borrowing-funds-401k\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/retirement\/hurdles-retirement-borrowing-funds-401k\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.paladinregistry.com\/blog\/wp-content\/uploads\/2014\/03\/retirement-hurdles.jpg\",\"datePublished\":\"2014-03-19T13:07:50+00:00\",\"dateModified\":\"2014-03-19T13:07:51+00:00\",\"author\":{\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/#\/schema\/person\/a02057a788c86adbf0adab8945036ce5\"},\"description\":\"Saving for retirement is a long process. 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