Serial Borrowing from 401(k)

After the initial loan, a recent Fidelity Investments study shows that a participant finds it much easier to return to their 401(k) account and take out another loan, and another, and another.  With the lower interest rates around 4%*, participants find it hard not to borrow from their retirement savings especially when “Compared with credit cards and personal loans, which now average 15.31% and 11.41%.”*

The study showed that most of these serial borrowers were in their 40s-50s and part of the reason they were borrowing from their 401(k) accounts was to cover expenses like children’s weddings, and college tuition.  Jeanne Thompson, Vice President for Fidelity Market Insights said, “On average, someone who took three or more loans over the 12-year period earned $80,000 [annually].”  20% of the 180,000 participants studied borrowed from their 401(k) accounts 5x or more.

Typically speaking, a participant can borrow up to 50% or $50,000 from their 401(k) plan although it does depend on the plan.

What are your thoughts on borrowing money from your 401(k) account?  Let us know in the comments below.

*Source, www.NYtimes.com, Tara Siegel Bernard, and Fidelity Investments.  Read the Full article here.

Leave a Reply

Your email address will not be published. Required fields are marked *