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Tuesday, November 7, 2017

Greetings Thrifty Friends,

It has long been the advice of money experts 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,

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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 401(k) 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 participant'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 no more than two or three years, and paying back the loan on schedule!