[USER]

I’m planning to buy a house in the next 6 mos. I’m considering taking out a $50k loan from my 401(k) and placing it in a High-Yield Savings Account currently offering 5.45% interest.

I understand that borrowing from a 401(k) comes with risks, including potential penalties if I can’t repay it, and the loss of compound interest on the amount withdrawn.

However, the interest rate on the HYSA seems attractive in the current market.

Given these factors, does it make sense to go ahead with this plan, or are there better alternatives to grow this money safely?

I’d appreciate insights on the potential benefits, risks, and any overlooked considerations.

Thank you

[Tristan]

Sorry to say it, but I’d change your strategy to not borrow from your 401k

[Rob]

I’ve never had a 401K, but I think if you borrow from it and you lose your job or the company folds, you have to pay it back in a short amount of time or get hit with big penalties.

[Thai]

You’re losing 20-30% the value of that amount the minute you borrow it (whatever your tax bracket is) because you’re paying back that loan with after tax dollars.

I would say probably not on that premise alone.

[Scott]

Borrowing against your retirement for a down payment is very high risk.

[Brian]

if the market tanks, and you lose your job not only are you homeless, but you immediately either owe the money back to your 401k, or you owe taxes plus penalty.

Cut back on your retirement investments, and start building your down payment in a HYSA, or CD’s

[AJ]

I did this but the scenario was a little different. It was 2015, the market was kinda flat, and I only borrowed $15k to put a 5% down payment on my first house purchase.

I didn’t know as much then as I do know obviously, but I was almost 10 years younger and more open to risk.

I decided that my job was stable enough to not have to worry about paying it off in a short time if I got laid off, and that paying myself something like 5% interest was better than the market return at the time.

It worked for me and I’m glad I did it.

But it was kind of a gamble and I’d do more math and scenarios on it today before doing it again.

[Josh]

Don’t, especially now that the market is lower. Want to do a crazy move, see what the interest is on your 401K loan and if it’s below 7% borrow it and put it back into the stock market.

Not for the faint of heart.

Don’t borrow it and put it in a HYSA, the interest of the loan will be higher than the interest you’d make.

[Author]

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