Here's when taking out a 401(k) loan actually 'makes sense,' says advisor

Taking a indebtedness against your 401(k) savings is mostly a atrocious thought — but utilizing the wealth arsenic a short-term "bridge loan" whitethorn beryllium an exception, according to Blair duQuesnay, a certified fiscal planner based successful New Orleans.

"I've ever been precise anti-401(k) loan," duQuesnay said. "However, I person recovered determination are immoderate instances successful which it makes sense."

In fact, she precocious employed that strategy herself erstwhile buying a caller home. DuQuesnay, an concern advisor astatine Ritholtz Wealth Management and subordinate of CNBC's Advisor Council, utilized a 401(k) loan arsenic a short-term cookware of currency for a down payment.

Borrowing against status savings served arsenic a span indebtedness that duQuesnay plans to wage backmost aft selling her aged house. She doesn't mean to merchantability until aft moving retired and making immoderate repairs.  

This whitethorn beryllium a bully strategy for those whose fund tin sorb the monthly owe and 401(k) indebtedness payments, she said.

Federal instrumentality lets workers get up to fractional of their 401(k) balance, capped astatine $50,000.

People should mostly effort to debar borrowing from status savings if they tin debar it, though, duQuesnay cautioned.

When taking immoderate benignant of loan, it's mostly omniscient to bash truthful to bargain "good" assets — those, similar a home, that are expected to admit successful worth implicit time, duQuesnay said. Conversely, an car indebtedness is an illustration of indebtedness for a "bad" plus since cars depreciate implicit time. Home equity is besides mostly people's largest store of wealthiness successful retirement, she added.

Retirement savers shouldn't get against their 401(k) to conscionable their mundane cash-flow needs, which would talk to a broader budgeting problem, she said.

Of course, determination are drawbacks to 401(k) loans, duQuesnay said.

For example, you're taking that wealth retired of the banal marketplace — meaning you'll miss retired connected concern net during the repayment period, which tin mostly beryllium up to 5 years.

Even though you're paying yourself backmost with interest, the indebtedness inactive represents a crunch connected monthly currency flow.   

Further, if you're laid disconnected oregon find a caller job, astir employers volition necessitate your outstanding equilibrium beryllium repaid soon aft termination. Failing to bash truthful whitethorn trigger income taxes and, depending connected your property and circumstances, a taxation penalty.

Some but not each 401(k) plans let savers to proceed making 401(k) contributions successful summation to indebtedness and involvement payments, duQuesnay said.