It's acually a pretty good financial tool if you know how to use it right. I borrowed a pretty decent sum of money from my 401(k) account a couple of years ago to finance a business venture. The interest rate was very low (4.25%), and that rate was better than what I was getting on my bond funds anyway so I cashed them in to get the money.
I did a little checking, it looks like as a defensive move it could work, but if I get laid off or quit, then I have 60 days to pay it all back, or face fines. If I don’t pay it back, they want 5 per cent right off the top and then tax the remaining funds left, etc etc.
We could borrow up to 50k (or half, whichever is less) and then sit on it, but payroll deductions have to be used to pay it back. That might be a good idea, but some plans don’t allow new contributions while paying back a loan. Might be offset somewhat by a lower taxable income in future years? Kind of a pain, but am still considering this.
“What is the age limit re borrowing from an 401k?