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401k Investment Loans and Holiday Shopping – Don’t Get Greedy

Despite a year filled with mixed economic news and Washington stalemates, the holiday shopping season kicked off with a bang.

The National Retail Federation reported an increase in total spending of 16% compared with last year, indicating American consumers plan to finish the year strong and take advantage of historic deals on 2011’s hottest items.

One of the hardest things to do this time of year is set a strict spending limit and stick to it. With discounts all over the place, it’s tempting to raid all your accounts to find extra spending money. Credit card debt gets plenty of media attention during the holidays, but alternative loan sources like your 401(k) account deserve some discussion too. And here it is.


Holiday shopping is not a good reason to take a 401(k) loan.

A loan from your 401(k) account leaves you owing yourself money. It might seem like a decent idea when you’re salivating over sales, but consider this:

  • Money taken out of your 401(k) account through a loan is no longer able to grow with any gains in the market. This can really put a dent in your retirement savings down the road.
  • If you cannot afford to pay back the loan and must default, the government will consider the loan an early distribution from your account which will include:
      • A 10% penalty if you’re under age 59½ and
      • Income taxes on the distribution amount.
  • If you leave your employer you’ll be required to pay the outstanding loan balance in full – you cannot rollover a 401(k) loan. If you don’t repay it upon separation from employment, you’ll be considered in default and the above penalties will apply.
  • You’ll still be paying interest on this loan. It’s not free money.

401(k) account loans can be a pain to deal with down the road. You’re better off maintaining a healthy spending plan this holiday season: if you can’t afford something, don’t buy it. And, as always, it’s important to plan ahead and understand that cutting back in other areas can be the smartest and easiest way to free some extra holiday cash.

To discuss 401(k) loans with a Smart401k adviser, contact us at 877-627-8401 or

Andrew Thomas

Smart401k Associate Representative

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About Smart401k

Smart401k is a web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans.  Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at