Borrowing on a 401(k)? Better Think Twice
Wall Street Journal (10/12/01) Vol. 10, No. 9 p.C1; Simon, Ruth

Borrowing from 401(k)s has enabled people to tap into assets that ballooned during the 1990s bull market, writes the Wall Street Journal's Ruth Simon. Indeed, the Profit Sharing/401(k) Council of America reports that one in five people who borrowed from their 401(k) had outstanding loans last year. Borrowing from a 401(k), however, becomes risky if an employee is unable to repay the loan within a preset time, which is usually no more than 90 days after leaving the company. If the loan is not repaid, it is considered a premature distribution, and the borrower must then pay a 10 percent penalty in addition to federal, state, and local taxes. Altogether, such fines can total nearly 60 percent of the outstanding balance for those people in higher tax brackets.


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