Retirement plan loans – What you really need to know

I never thought I’d have to consider taking
a loan from my retirement plan. Then I hit a few bumps in the road, looked
into my options, and made an informed decision. Here are some things I learned along the way. Ask yourself: Is borrowing from a family member
or bank a better option? Also, if you’re a home owner, you could
consider a home equity loan, which has potential tax advantages. Did you know that if you can’t pay your
scheduled loan payments, you will likely be hit with taxes and a 10%
penalty unless you’re nearly 60 years old? It’s a lot to think about. If a loan from your retirement plan is still
the best option for you, here are some more things to consider: Borrow only what you absolutely need. Have a backup plan to pay back the loan in
case you leave or lose your job, because your loan balance will probably be
due within 60 days, or even right away. There are usually fees associated with setting
up or maintaining the loan. Your payments are automatically deducted from
your paycheck, and you have up to five years to pay it off,
possibly longer if you’re using the money to buy a house. You’ll pay interest on the loan, but you
pay yourself the interest, so it goes right back into your retirement
account, which isn’t so bad. Retirement plan loans don’t impact your
credit because they aren’t reported to credit bureaus. Another thing to think about is that, while
your money is out on loan instead of in your account, it’s not being invested in the market — meaning
that you may be missing out on potential earnings. If you take a loan and reduce how much you’re
contributing, which is pretty common, you’d reduce your savings even more substantially. So it’s important to keep saving while you
pay back the loan. [MUSIC PLAYS IN THE BACKGROUND] Taking a loan from your employer’s retirement
plan is a big decision. Consider all of your options before deciding
if a loan from your retirement account is right for you. [MUSIC PLAYS IN THE BACKGROUND]

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