(InvestigateTV) — Vanguard reported that 13% of 401(k) holders had an outstanding loan at the end of 2023.
Sara Rathner, a personal finance expert with NerdWallet, said borrowing from a 401(k) is an option, but consumers need to be very careful.
“Just remember that you are robbing your future self when you do this,” she said. “And if the debt currently is such a large problem and you don’t have any other options, it could be something that helps you get out of that debt. But you’re also going to want to also explore how you got into the debt in the first place to prevent having to borrow from your 401(k) again in the future.”
Experian said people also need to consider what happens when they take out a 401(k) loan and then leave their employer.
Whether they wanted to leave for a new job or if they got laid off, they may have to pay that loan back right away or it’s going to become taxable income.
Rathner said tapping into a 401(k) should be a last resort.
“When it comes to long term investing, time in the market is really important, that’s what works in your favor to help grow your nest egg. So, future you has financial security.”
She said there is a lot to consider. A financial advisor may be the way to go to help sort out if a 401(k) loan is really the best choice.
For those who do have to take out a 401(k) loan, Rathner said pay it back as soon as possible.
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