Savings Day – Borrowing From Your 401K

It’s Build Your Savings Day!

A listener asked if she should use a low-interest credit card or borrow from her 401(k) to replace her air conditioning unit. I recommend that she make repairs to keep it running through the summer, then save to replace it. If that’s not possible, she should study the market. Costs vary dramatically for equipment and labor. Check big-box stores and seek advice from friends and neighbors.  

Typically Withdrawing funds from a 401(k) before 59 ½ costs a 10% penalty. Plus, taxes are charged on money withdrawn, so it’s not my first choice. A low-interest credit card or personal loan are good options but a payback plan is crucial.  

For help starting to save for unexpected expenses, download the ELI App at crown.org.