Is it ever OK to borrow from my 401K?
And here is always my answer:
It would be acceptable to borrow from your 401(k) if you had one house on the market for sale, and you were buying another replacement house. In this fashion, you would simply effect the loan to help with the cost of the new home’s down payment, perhaps, until the pending sale settlement. Since the 401(k) loan limit is $50,000 however, this may have limited application.
Alternatively, if you were waiting for a predictable income inflow and had an emergency expense in the interim….like a roof needing emergency repair/replacement and you receive monthly rental monies you could easily borrow from your “left pocket” 401(k) to pay for the repair, knowing that rental monies would be flowing into your “right pocket” each and every month, such that the 401(k) loan would be repaid.
Finally, and this IS a stretch, IF you were out of work, and were diligently seeking re-employment, it may be prudent to borrow from your 401(k) ONLY if you drew up an amortization schedule and systematically repaid the loan each and every paycheck once the new job was landed.
My biggest reservation on all this is that most folks do not repay that loan, and so the point of putting it aside in the first place is made moot. If you want income in retirement, you have to save for it by putting money aside. A 401K, indeed any IRA, left untouched, is a terrific tool and that money should be left to compound and grow in peace.