Borrowing money - is 401k an option?

Microsoft satnadella
Mar 18 29 Comments

For personal reasons, I need about 50k liquid in the next few months. I will be able to return the amount within 3 months from the time I borrow. Considering some options here, please help me decide and let me know if there's other better alternatives.

1. Liquidate all my stocks. This will mean selling some of my shares at a relatively significant loss due to the current market. I'm fairly well diversified and in it for the very long term but am worried that selling now and trying to rebuy after 3 months will affect that balance. As in, if I sell today and stock goes up 20% within 3 months. There's no crystal ball to predict this I know but I would rather pay a known percentage and take a loan vs. try to time the market and get out for 3 months.

2. Take a loan from my 401k. Is this even an option? This is not for a house. I have over 100,000 in my 401k so I'll be able to get 50k (the half or 50k rule) but can it be loaned out for just 3 months? I guess the bigger concern here is that I am indeed planning to switch companies as well within that 3 month time period so this will not work, correct? Or is there a way around that? My next company will also have 401k.

3. Get a personal loan or line of credit? I have not researched this a lot yet so looking for input. Do companies loan without any minimum time frame of repayment. My credit score is in the 735-765 range.

Thanks, looking forward to hearing some opinions!

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TOP 29 Comments
  • Microsoft / Eng DfcM62
    Take a personal loan from any local credit union
    Mar 18 2
    • Microsoft satnadella
      OP
      What is the interest rate range and do they usually allow quick repayment without any penalty?
      Mar 18
    • Microsoft / Eng DfcM62
      Interest rate depends on your credit score and length of your credit history. I took 40k loan couple of years back with 9% interest rate in FirstTech. Consider Sophi, upgrade and even Amex lends money too. There is no penalty when you repay quickly.
      Mar 18
  • Facebook blueteapot
    Not every 401k plan requires immediate repayment on separation. Some allow you to make repayment directly, on the same amortization schedule as the withheld payments. Check your plan docs, or give them a call.

    For the time frame you are mentioning, the double taxation on interest should be much less than the cost of any other source of funds.
    Mar 19 0
  • NerdWallet Nizime
    I’ll lend it to you for 15% interest
    Mar 18 0
  • Sage
    khCi60

    Sage

    PRE
    Coca-Cola, The Home Depot
    BIO
    East coast
    khCi60more
    Go with number 3

    But also without knowing what you are really doing we should all be suspicious- what is the money for????
    Mar 18 6
    • Sage
      khCi60

      Sage

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      Coca-Cola, The Home Depot
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      khCi60more
      Well u shouldn’t take all the risk. Can’t everyone get a cash advance on credit card and divide up the risk? Especially if it won’t be spent and it’s only a few months you’re probably looking at 5% fee
      Mar 18
    • Sage
      khCi60

      Sage

      PRE
      Coca-Cola, The Home Depot
      BIO
      East coast
      khCi60more
      Assuming 20% APR and 3 month timeline e etc
      Mar 18
    • Microsoft satnadella
      OP
      Since the business and loan is on their name, it would disqualify the loan if they borrowed. I'm not worried about this being a risk since they don't plan to use this money at all and I have no doubts there.
      Mar 18
    • Sage
      khCi60

      Sage

      PRE
      Coca-Cola, The Home Depot
      BIO
      East coast
      khCi60more
      No you didn’t follow...everyone get a cash advance on a credit card. Our that money in bank. Then withdraw and pay it back. Not a loan. No applications etc...most cars will let you do this for a fee
      Mar 18
    • Microsoft satnadella
      OP
      The loan specialists told us that the money must not come from an account associated with them. It will essentially end up double counting what they have already considered (they for example already know this person has a 20k credit card. Now, for the cash in account, it needs to be a different source).
      Mar 18
  • Amazon cchb
    You can borrow against your 401k free of penalty if you pay it back within a specified time. Check with your plan owner on the rules.
    Mar 18 3
    • Microsoft satnadella
      OP
      My main concern there is that I plan to switch companies. This will mean that my plan owner will change and generally that requires a complete repayment immediately.
      Mar 18
    • Adobe adgjl086
      Yes. If you switch jobs, the remaining balance will need to be paid immediately.
      Mar 18
    • eBay
      ebayinbay

      eBay

      PRE
      eBay
      ebayinbaymore
      You can return in 3 months or pay it down from salary deduction or you get 30-90 days depending on company policy to pay back loan once you leave
      Mar 18
  • Zillow Group Croissants
    Beware of double taxation of your interest paid on the 401k loan. You pay the interest with after tax money. The interest is added to your account. You'll be taxed again when you withdraw it. The principal is fine though.

    I don't think your $50k will grow in your 401k account if you take it out. It'll be similar to setting the funds and rebuying them when loan is paid off.
    Mar 18 0
  • Oracle
    •••••••

    Oracle

    PRE
    Google, Facebook, Instacart, Twitter, Uber, Air Asia, IBM, Cisco
    •••••••more
    401k is the best of 3 options.
    Mar 18 3
    • Microsoft satnadella
      OP
      Is 401k loan allowed for non home purchases? What happens when I switch companies, doesn't loan become due immediately?
      Mar 18
    • Leanplum ballsacks
      Yes, allowed for non-home.
      If you leave, you have to pay it, or pay early withdrawal penalties + taxes on the outstanding amount (I think).

      How certain are you that you'll change companies within the same timeframe?
      Mar 18
    • Sage
      khCi60

      Sage

      PRE
      Coca-Cola, The Home Depot
      BIO
      East coast
      khCi60more
      Oh good to know...
      Mar 18
  • Sage
    khCi60

    Sage

    PRE
    Coca-Cola, The Home Depot
    BIO
    East coast
    khCi60more
    You can withdraw Retirement at a penalty but u can’t borrow against it.
    Mar 18 3
  • Morgan Stanley mailbox123
    Don’t borrow against your 401k. Do you have outside investments? Liquidity access lines (securities backed loans) are meant just for this. Morgan Stanley has a promo rn that you can use on your brokerage account for a 3.3% locked interest rate for 1 year. Generally can take a loan of up to 60% of your principal value unless your positions are very concentrated
    Mar 21 0
  • Zillow Group Croissants
    Stock brokerage leverage is another option. Or leveraged ETFs. Sell some stocks and buy leveraged ETFs. You'll have similar exposure and take some money out.
    Mar 19 0
  • Intel / Eng DonaldDD's
    Sounds like your being hunted by the mafia. Might I suggest 4x M16’s and 4x bodyguards? This might come out cheaper and you can get on the offensive. Show the other guy that you can revert back, but never kindly.

    DM me for any missing details
    Mar 19 0
  • Qualcomm pulsar14
    Blend all 3 options.

    Stocks are at a high now, so it wouldn't be the worst time to sell a portion and lock in some profits even if it kept going up.

    Take a smaller 401k loan so there's less risk if you need to repay it back quick or are unable to and need to pay penalties.

    Take a personal loan for the rest from a credit union.
    Mar 18 0