Easy money, sleazy money. When a crisis happens, it can be very tempting to just borrow some money from your 401(k) to cover the unexpected expense. But before you dip into your retirement savings, find out why you may want to reconsider that 401(k) loan and what you should know about what you’re getting into.

• Sometimes life feels like it isn’t giving you any options. When that happens, it can be very tempting to take money out of your 401(k), but that’s a pretty bad idea.
• Just because you have a 401(k), that doesn’t mean your particular 401(k) offers loans. Even when they do, you probably shouldn’t.
• The trouble is taking money out of your 401(k) doesn’t seem that bad. You’re borrowing from yourself after all, there is no credit check, it’s guaranteed, and you’re going to get a pretty good interest rate.
• One of the problems with a 401(k) is you have to pay tax on the money twice, and you should always avoid paying unnecessary taxes. The money that you put back in the 401(k) gets taxed, and then when you take it out in the future during retirement you pay taxes again.
• You’re paying yourself interest on that loan, but it’s not going to be as much as you could earn with other investments. Over the loan period of five years, you’re going to lose the growth on your money that you are going to need to support you during your retirement years.
• If you ever lose your job for whatever reason, you have to pay back the loan immediately. If you don’t repay it, it’s taxable, and if you’re not 59 and a half, you get hit with a premature distribution penalty.
• There is also the danger of starting to view your 401(k) as a source of “now” money instead of retirement money, also known as robbing Peter to pay Paul.
• If you are going to take out a 401(k) loan, make sure you can repay the loan before you take it. Are you going to be at that company for the next 5 years?
• Also make sure you have the cash flow and understand what the payments are going to be. Your paycheck will go down for the loan repayment period.
• To get your own 401(k) Loans Fact Chart with the pros and cons of 401(k) loans, email [email protected].
• Develop a cash reserve of at least three months worth of living expenses so you can avoid taking loans in the future. Put expected but irregular items into your budget. For anything that can reasonably happen to you but would be unexpected, get the right insurance.

To explore working with Wayne Firebaugh to fireproof your money, please call 855-WAYNE KNOWS or check out at fireproofyourmoney.com.