Use 401(k) as a last option

There are other places you can go for a loan

Question: I have some high-interest credit-card debt and was considering a loan from my retirement account to pay it off and save money on interest. How much can I borrow, and is it a good idea?

Answer: If your plan administrator allows it, you can borrow from your

401(k). The maximum you’re allowed to borrow is $50,000, or half of your account’s value, whichever is less, but if your account is worth less than $10,000, you may be allowed to borrow the entire amount.

401(k) loans also must be paid back within five years, unless the proceeds are used to buy your primary residence.

I’m generally opposed to using 401(k) loans unless there’s a good financial reason to do so and you don’t have any other types of low-interest borrowing available, such as a 0% APR balance transfer or a personal loan with comparable interest.

Sure, you’ll be paying yourself back with interest, but the “prime plus 1%” charged for most 401(k) loans is far less than the historical long-term returns of a typical 401(k)’s stocks and bonds portfolio.

Having said that, a massive amount of high-interest credit-card debt could certainly be a good reason to borrow from your 401(k) if you don’t have any other options. This is especially true if you use the money you save on interest to add to your retirement savings.

Finally, you cannot borrow from an IRA, so you’ll get hit with a penalty for withdrawing money from your IRA without a qualified reason.