4 things to consider before taking a loan from your retirement account

Some retirement plans allow participants to take loans from their retirement accounts.  Taking a loan from your account is a personal decision, and you should evaluate your options carefully with a financial professional. But first, consider these points  if you are thinking about taking a loan from your retirement account.

Before taking a loan from your account, find out if:

• Your plan allows loans
• There are fees to set up and maintain the loan
• Your plan has a maximum number of loans you may have at one time
• Your plan requires a minimum account balance before you can take a loan

If you are unable to pay back the loan during the specified repayment period, or if you change employers and are not able to pay the remaining balance back at that time, the unpaid loan balance will be considered a “distribution” from your retirement account. This means you would have to pay taxes, and possibly penalties, on the amount of the loan you still owe.

If the money that remains in your retirement account is earning a rate of return that is higher than the interest rate on your loan (the amount you are paying yourself back each month), then you could be losing money.

Your retirement account is meant for long-term financial goals rather than short-term objectives. Consider your retirement account a last resort for borrowing money. You may find alternatives that can help you cover your financial needs. Talk to your financial professional for suggestions.