Your retirement plan is a nest egg for your future, a way to avoid becoming a burden on your family in your old age, and a strategy to reduce your tax bill.

 

But should it also be an easy source for a loan?

 

You may not have known, but some retirement plans allow individuals to take out loans against their retirement assets. And a loan from a retirement plan — money that is technically yours anyway — may sound like a really good idea, especially when retirement seems so far in the future. Since we’ve got other ways we’d like to use that money right now, it’s hard to see spending it as a bad financial decision.

 

However, it may not be a good idea to borrow from your retirement savings. When your money is in the market, it has the potential to grow, which could boost the amount of savings you end up with when you finally do get to retire. When your money is out of the market, you’ve lost that time and opportunity for potential growth.

 

And if you lose or leave your job, you generally have to pay back the loan immediately. If you can't pay it back at that time, you will be taxed. And in the case of a 401 plan, you may be subject to a 10 percent penalty for premature withdrawals. This tax bill might be tough to afford in a year when you need the money for an emergency, and even tougher if you lose your job.