Tuesday, February 22, 2011

Greetings Thrifty Friends,

It has long been held that you never take a loan from your
retirement account, especially your 401(k). Beg, cheat or
steal, but don't touch that 401(k) or you'll be committing
financial suicide.

However, in a tight financial climate a 401(k) loan might
be your best option if you need emergency liquidity.

Keep pinchin' those pennies,
Penny

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TODAY'S THRIFTY TIP:

Technically, 401(k) loans are not true loans, because they
do not involve either a lender or an evaluation of your
credit. They are more accurately described as the ability
to access a portion (usually less than 50 percent) of your
own retirement plan money on a tax-free basis.

Receiving a loan is not a taxable event, and it normally
has no impact on your credit rating. Assuming you pay back
a short-term loan on schedule, it usually will have little
impact on your retirement savings progress.

Another confusing concept in these transactions is the
term "interest." Any interest charged on the outstanding
loan balance is repaid by the participant into the partici-
pant's OWN 401(k) account. That's right, you are paying
yourself interest. And that's a lot better than paying it
to a bank!

They key points are to keep the loan term short, usually
only one year and not more than two, and paying back the
loan on schedule!


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