Emily Guy Birken

“RETIREMENT PITFALL #5: Taking a Loan from Your 401(k) This is an enormous no-no at any time in your career, but it’s a particularly disastrous mistake if you’re within five years of your retirement. Money removed from your 401(k) is money that cannot grow (with compound interest!), even if you are able to pay it back relatively quickly. The lost time equals lost growth, which you cannot afford to waste. In addition, 401(k) loans are considered withdrawals—with the attendant 10 percent early-withdrawal penalty plus income taxes—if you lose or leave your job before paying it back. Add the fact that most 401(k) plans will not allow you to contribute money to the plan while you have an outstanding loan, and it’s clear that this kind of loan is going to be extremely costly for you. If you need a loan, it’s far better to explore taking a home equity loan or borrowing from your insufferable brother than taking money from your own future. Yes, the interest on 401(k) loans tends to be low, and you are paying that interest to yourself. But the potential costs and risks are far too high, especially for those who are in their final years of work.”
― Emily Guy Birken, The 5 Years Before You Retire: Retirement Planning When You Need It the Most