You Owe Your Tomorrow
they can’t possibly repay.” (source:
Roos) This has parents looking for
alternative ways to fund their children’s
college costs and some are considering
borrowing from their 401(k)’s.
Loans from 401(k)’s are allowed by
law. The statutes governing plan
loans usually do not place specific
restrictions on the use of the loans, but
do state the loans “must be reasonably
available to all participants.” (source:
401khelpcenter) However, employers
place use restrictions within their
Summary Plan Documents on the
acceptable reason for borrowing from a
participant’s 401(k), of which to paying
for education expenses for yourself, a
spouse or a child is typically allowed.
The only issue remaining is whether
it is a good idea to borrow from you
401(k) to pay for college expenses.
There are pros and cons, but in the end
it will always come down to planning.
If a person begins early enough to
save for retirement, then presumably
he or she will have enough saved to
comfortably borrow from the 401(k)
to help pay for the college expenses
to offset the “cons” of borrowing from
the retirement fund, such as the loss
of interest on the amount borrowed,
possible fees, other opportunity costs.
Also, there is a limit of half of the
balance or $50,000 maximum you can
borrow from the account, so that will
only go so far towards the cost of the
college expenses.
in your 401(k). 401Khelpcenter lists
these pros as: 1. There are usually no
restrictions, 2. The interest you pay
you are paying to yourself, 3. It is
convenient, 4. The wait is not long to
get the loan, and 5. You are choosing
where the money is coming from. If
you have planned ahead and saved
prudently, then you can, if you choose to
do so, borrow from your 401(k) to help
pay for college expenses— if the pros
outweigh the cons. Instead of risking
your future and having a “YOLO”
attitude about life and retirement you
can successfully “SITUP!” n
However, there are many “pros” if
you have started early enough and
have built up a “comfortable” amount
www.conferomag.com | 21