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401k loan before being laid off

By Terry Savage on October 18, 2020 | Financial Planning / Retirement

We took out a small loan from my husbands 401k earlier this year, it was about $1400. Husband is about to get laid off due to Covid. There is about $13,000 currently in his 401k. He has been with the company just over 3 years. The guys at his job are telling him to cash out the 401k. I know that we wouldn’t have to pay the 10% penalty (Just the taxes) due to Covid, but I am concerned about the loan? We have two large car payments as well as a house payment, we could use the money.

Terry Says

Well, that is a huge mistake that you will regret later. His co-workers won’t be around when you are in your seventies and needing money — and can’t work. Please roll it over to Fidelity or Vanguard– and invest conservatively in a balanced fund or equity-income fund.
When you lose your job, any loans become due and payable — or are taxed as ordinary income, plus penalties. You may avoid the penalty because of the Covid provisions.

I’d rather see you sell the second car and put the money toward house payments. Believe me, this crazy time will end, he will get back to work — and your retirement money needs another 20 years to grow. So do everything possible to avoid cashing it in.

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