Don’t break into your 401k.
I wish that people would listen to that. The number of people who are dipping into their nest egg for a loan, or to take out Cash is growing. Do you know why? Home equity is falling. Banks are freezing or canceling HELOCs (Home Equity Line of Credit) because home loans are dropping. So people, not smart people, are going the next accessible piece of money.
Taking any more out of 401k is IMHO Bad Idea #1. Not only do you have to pay taxes on it as Ordinary Income (28%), you have to pay a 10% penalty. So kiss 38% of your money good bye. Even worse, there’s the opportunity cost. While you lost 38%, you have to make back 61% just to break even.
There are some hardship exceptions where you can avoid the 10% penalty. I’m not even going to talk about them because I don’t want anyone to be tempted.
Bad Idea #1, sub section a. Is to take a loan against your 401k. You can only take the money out for a 5 year period, and if you leave your job, or loose your job, you have 90 days to repay it, or your forfeit the 401k, and then have to pay taxes and penalties. It’s not as bad a financial decision as the above, but due to the risk, I would truly consider this the loan of last resort.
You aren’t just giving up short term gains, you are sacrificing long term gains. So before you crack your egg, think about your life living on Social Security only. If that doesn’t scare you straight, I may not be able to help you.
