Downsides to Borrowing from Your 401(k) to Fund Your Business
A potential source of short-term or emergency funding for your business might be a loan from your or your spouse’s 401(k) retirement plan—if the plan has a loan provision in place.
If you can take loans with your plan, be sure to read the fine print to know what you’re getting into, and consider these two factors:
- If you drain your retirement funds for your business, and your business doesn’t make it, what will you have for retirement?
- The advantage of a 401(k) is the tax-advantaged growth of assets. If you borrow from the plan, you’ll lose potential growth.
In the long run, a low-interest loan from a bank or other financial institution might actually prove to be a more viable option.