We have already described the principle of operation of this saving plan. So, the answer to this question is definite: yes, you can borrow from 401k. Still, you should remember that this plan is designed to save money for retirement. So, if you are under 59 years old, you will face penalties. Usually, they comply with 10% but they can vary depending on the interest rates and other financial fine points.
Still, there are different emergency situations and the 401k plan might be the only solution. For instance, we often receive such a question as “How to borrow money from 401k for buying a house?” or “How to borrow money from 401k to pay for child’s education?” In such cases, withdrawing money from this account can be a reasonable option.
Generally, you can borrow money from your 401k plan less than $50,000 or one-half of your vested plan benefits (what is usually less than $50,000). We don’t recommend you withdraw the whole sum and, in most cases, it’s impossible.
Before asking the representatives of the plan on how to borrow money from 401k, you should find out whether your plan allows you withdrawing funds. Some plans allow withdrawing money only in particular defined cases.