Should You Borrow From Your 401(K) Or TSP?

Posted By Team iBizExpert On March 03, 2022 08:05 AM Hits: 70

Most people think you should never, ever borrow from your 401(k) (K). Financial experts say that we shouldn't take money out of our 401(k) for tax reasons and that many people don't have the self-control to pay back the loan.

With a Thrift Savings Plan (TSP), which is the government's version of a 401(K), things are a little bit different. You can get a loan for 50% of your balance, just like with a 401(k). There are two different kinds of loans you can choose from, and you have to pay them back.

Personal loans and loans for a main home are the two types of loans. The personal loan has to be paid back in 5 years, and the loan for your main home has to be paid back in 15 years. It must be the main place of living.

There are a few things about this that I like. I can get a personal loan and use it to pay for a home that isn't my main one. And all I have to do is fill out a one-page form and send it online or by fax. In 10 to 14 days, I'll get a check. I looked into getting a home equity line of credit (HELOC), but there were too many forms, credit checks, and fees totaling about $8,000.

I like that the interest rate is low as well. As of January 30, 2008, it was at 4 percent, which was 2 points less than the HELOC. I'll lend the money to myself and pay it back with a 4 percent interest charge.

The important thing about this type of loan through the government retirement programme is that once I take out the loan, the payments will be taken out of my paycheck automatically the next time I get paid. This will be the self-control by force. I have to pay it back because it was taken out of my pay.

I do have to pay $50 to get the paperwork taken care of. Compared to $8,000 for the HELOC, that is a small amount.

You should look at other ways to borrow money and compare the costs of each plan now and in the future. As of June 2006, there were more than 5 billion dollars worth of loans that had not been paid back.

So, I'm not the only one who needs to borrow money for a house, college, or something else big. I might lose some tax breaks, my TSP fund will be cut in half for a while, and it will take a few years for my retirement fund to get back to "normal."

Most financial planners say that borrowing from your retirement fund is a loan of last resort because you don't have to pay it back if you borrow from a 401(K).

The fact that money was taken out of my paycheck and put into my retirement account automatically was what made me decide to borrow from my TSP. It also helped that the interest rate was low and it was easy to apply.

Tags/Keywords: money, pay, loans, loan, borrowing, retirement, borrowing money, 401k, primary, fund, tsp

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