401k loan for fees and maintenance

[stupidme]

by the time my divorce is over i will have about a 4000 attorney bill. also, i can't afford the 1000/mo maintenance that i am currently paying. does anyone know if i can take out a loan against my 401k for the attorney fees and about 2 or 3 months worth of maintenance payments??? thanks.

 

[TimC]

With my particular 401K I can take out a loan for whatever I want. They don't even ask what it is for.

I go to a website, make a few clicks of the mouse, and a check shows up in less than 2 weeks.

 

[ShyCat]

Not all 401(k) plans allow loans. You will have to check your plan's SPD (Summary Plan Description), available from your HR department.

Keep in mind that 401(k) loans can be one of the worst ways to borrow money.

First of all, most plans do not allow you to continue making payments if you terminate employment. The balance becomes immediately due, and if you can't pay it, you will end up paying income taxes plus the 10% early withdrawal penalty on the unpaid balance. That tax bill can make a job loss hurt even worse.

Second, the loan payments will amount to double-taxation of your retirement withdrawals. You will be repaying the loan with after-tax money, plus paying income tax again when you withdraw that money upon retirement.

Third, there can be a large opportunity cost in removing that amount from the compounding investment growth.

I'd recommend a 401(k) loan only as a last resort.

 

[TimC]

My 401K program does not work like that at all. With our program, you get a loan that comes out of a general fund. My money stays in the 401K. The loan is merely secured by the 401K. Whats better is that the interest that I pay on the loan goes right back into MY 401K account. Just a benefit of working for a large corporation, I guess. This particular plan offers the best of both worlds.