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Anonymous
Anonymous asked in Business & FinancePersonal Finance · 1 month ago

Is it ok to borrow from my 401K in an emergency? ?

The foundation on one side of our house is collapsing. We had 2 people come out and estimate. It’s going to cost us around 40000 to repair. My husband and I don’t have 40000 just laying around. Would it be feasible for my husband to take the money out of his 401K and pay it back gradually?  

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  • 1 month ago

    You really want to try to find another way too, like a home equity loan.  The big issue is if he loses his job you have to repay the loan or it becomes an early withdrawal complete with penalties.  

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  • 1 month ago

    Yes but there will be tax penalties involved

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  • 1 month ago

    Yes, if your 401K has enough in it to cover the expense, and if it allows borrowing you can do that. But the next person's answer is very good--check with your homeowner's insurance FIRST--because this might be covered. Also check with your county, city or state to see if they have programs that might be of assistance in major repairs like this. Some do. Explore many options before using your retirement fund--but if you have to, it's usually a relatively painless thing to do and the interest is low on such loans. It may be paid back by payroll deduction, so you'll never miss a payment. Remember--you can only borrow your OWN contributions, not your employer's so the TOTAL amount in that account may or may not be enough. 

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  • 1 month ago

    Yes, but before you do that, check to see if your homeowner's insurance covers it.  Also check - you might have a home warranty.  Also, if the house is fairly new, the building might be responsible.  Check all that out before you deplete the 401k.

    Source(s): Certified Paralegal, with 25+ years' experience.
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  • Judy
    Lv 7
    1 month ago

    Only as an absolutely last resort. And should be paid back asap as high priority, not gradually.

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  • 1 month ago

    Can you borrow against the house?

    That would be better in nearly EVERY case.

    If you talk to your current mortgage holder, they are ALREADY out the money if the repairs are not made.

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  • Eva
    Lv 7
    1 month ago

    If the 401k allows loans, then yes but you may be limited to a certain percentage of the balance. The danger with doing that is that if for some reason your husband loses his job, the remaining balance instantly becomes a distribution and therefore taxable (plus penalty if under 59 1/2). Will your homeowner's insurance cover it, at least in part?

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  • A.J.
    Lv 7
    1 month ago

    Generally, there are three choices by what you describe. 401K loan, a payment plan by the service company, or a home equity loan or refinance.

    Payment plans by the service company are generally only worthwhile as either no other option or in a short term payback.

    The 401K loan involves loss of future gains on the borrowed funds and a double taxing on the interest as it is paid back with after tax money and at eventual withdraw again is taxed again as income.

    Home equity and refinance loans give a longer flexible time payback at normally better interest rates but have closing costs, risks the home if unable to pay back, and may or may not have tax deductibility because of income tax changes in 2018 affecting the standard deduction vs itemizing, and future tax rates considered also.

    It depends on factors of interest rates and a closing cost estimate and your tax bracket.

    Loan amortization website

    http://bretwhissel.net/amortization/amortize.html

    A 401K loan can be considered in higher marginal tax bracket rather than average tax. A good analysis takes a lot of detail. If you know someone good with numbers that you are willing to share income information, it can be calculated.

    I just say know your options and try to make the best choice.

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  • 1 month ago

    Talk to your bank. They may have some ideas.

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  • 1 month ago

    You can probably do that but are you aware that there are Federal grants available as well? I don't know if you qualify but it is worth looking into.

    https://freefinancialhelp.net/free-home-repair-gra...

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