The Venerable 401(k): A Last Ditch Resort to Obtaining Cash

Everyone knows that regular, planned donations to a 401(k) set up by your employer reaps tremendous financial rewards in the long run, especially in a scenario in which an employer matches donations. But should a 401(k) be used as a way to make ends meet should you have a rainy day?

Experts say no. Last year, nearly 10 percent of America's employees who regularly donated to their 401(k) obtained loans from their plans, borrowing just over $18 billion last year for an average loan of $7,600. A year later, about a third of those loans are outstanding.

Because plan rules allow withdrawals of up to half of the vested amount, and with five years given to pay back loans, it's just too easy to use the 401(k) as a quick cash source. However, the pros outweigh the cons in the long run; the fact that the money no longer is tax sheltered, as well as the lost interest, does not make a very good case for this method of borrowing.

CPAs and accountants should take heed to the advice they give to clients and employers. Explore your options and decide what makes the most sense for your own situation.

Upcoming CPE Webinars

Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.
May 1
This material focuses on the principles of accounting for non-profit organizations’ expenses. It will include discussions of functional expense categories, accounting for functional expenses and allocations of joint costs.
May 14
Save your relationship in those few situations where your performance falls far from perfect. It’s easy to want to brush service failures under the rug, hope no one notices and assume that somehow everything will be all right. In this workshop, Kristen Rampe, CPA will give you the tools to strengthen your professionalism in the face of the worst-case-scenario. Don’t let experience be your only teacher on these topics!