NEW YORK (8/27/13)--Like potato chips, 401(k) loans can prove too tempting to stop at just one.
Fidelity, which manages the 401(k) plans of 12 million workers, studied the behavior of 180,000 401(k) borrowers over a 12-year period (The New York Times Aug. 18). About 66% took more than one loan, 25% took three or four loans, and 20% took more than five loans.
Most financial experts condone limited 401(k) borrowing, particularly if it's to keep you afloat during a period of financial distress (USA Today Aug. 12). After all, it's easy to do, the interest rate is low--usually a point above prime--and you're paying back the money to yourself.
But before you tap your 401(k), consider these points:
Given those liabilities, it might make more sense to seek a low-interest home equity loan or line of credit from your credit union before imperiling your retirement goals. That's especially true if taking a 401(k) loan leads to double--or quadruple--dipping.
For related information, read "IRA Withdrawals: The Good, the Bad, and the Ugly" in the Home & Family Finance Resource Center.