Household debt is on the rise, driven by increases in student loans. A Charles Schwab survey found that borrowers are tapping nest eggs, too, with one in four 401(k) participants surveyed having borrowed against their accounts.
Some loans were hardly essential: 9% of borrowers tapped a retirement fund to “buy something special”; 4% did so for a vacation.
Borrowing against your 401(k) is rarely a good idea. Here are four reasons:
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. You may rationalize that you’re paying interest to yourself, so the loan doesn’t cost you anything. But if you’re earning 10% on the investments in your 401(k) (the long-term average for big-company stocks) and paying 4.25% interest (the current average) on the loan, you’re shaving your return by nearly six percentage points, plus all of the compounded growth on those earnings.
2. Borrowers often stop contributions while loans are outstanding, compounding the long-term hit to their nest egg.
3. You’ll repay the loan with after-tax money, which means, unless you’re borrowing against a Roth 401(k), the interest you pay will get taxed again when you withdraw it at retirement.
4. And if you leave your job for any reason, you’ll have to pay the loan back, typically within 60 days of leaving. If you can’t, you’ll owe taxes on the balance and, if you’re younger than 55, a 10% penalty as well.
-
The Stoic Retirement: Ancient Wisdom for Today's RealityA "Stoic retirement" doesn't mean depriving yourself. It's a character-based approach to life and aging that can bring calm and clarity.
-
My Teen Crashed His Car and Now Our Insurance Has Tripled. What Now?Dealing with the costly aftermath of a teen car accident is stressful. Here are your options for navigating it.
-
11 Outrageous Ways To Spend Money in RetirementWhether you have excess cash to spend or want to pretend, here’s a look at 11 ridiculous ways retirees can splurge.
-
Amazon Resale: Where Amazon Prime Returns Become Your Online BargainsFeature Amazon Resale products may have some imperfections, but that often leads to wildly discounted prices.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
-
SIMPLE IRA Contribution Limits for 2026simple IRA For 2026, the SIMPLE IRA contribution limit rises to $17,000, with a $4,000 catch-up for those 50 and over, totaling $21,000.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
