Q.
Can I borrow from my 401(k) to pay off debt?
A.
Yes, some plans let you borrow money from your account and simply charge an interest rate, and it works like any other loan you'd get from a bank or mortgage company. But be careful, because when you're under age 59-and-a-half and you take money out of your 401(k), you have to first pay income taxes on the money. (Remember, you stashed it into that retirement account without giving the government a dime.) Then, after paying those taxes, you'll pay an additional 10-percent tax penalty. There are some exceptions and the penalty may be waived if you incur serious medical expenses, experience a severe disability, or have a financial hardship that makes it impossible as a first-time homeowner to make your down payment. But the bottom line is, try not to borrow from it.
Nestpert Brett Graff, The Home Economist and former government economist
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