If you want to borrow money from your 401K, don’t! The disadvantages tend to significantly outweigh the benefits. Instead, use you fine jewelry or luxury watch to get a jewelry-backed loan from the Diamond Banc.
Why you shouldn’t borrow money from your 401K
Since the 2008 housing crisis, more and more consumers are turning to their 401Ks as a loan source. Home equity loans are no longer an option for many people and personal loans are hard if not impossible to get. This is leaving many people who need money for an emergency with few options. However, borrowing against your 401K should be avoided if at all possible for several reasons:
- Many people are already under-saving for retirement and borrowing against your 401K just compounds this problem. The beauty of a 401K retirement fund is the interest that compounds over time; if you take the money out for a loan, then you are not accruing compounded interest.
- As you pay back the loan you’ll be re-buying the shares you previously sold, usually at a higher rate.
- Even if you are “just borrowing from yourself” there are fees associated with acquiring the loan, usually a processing fee that goes to the administrator.
- Depending on your 401K plan, you may lose the ability to contribute to the fund while you have an outstanding loan against it. Some loans may take years to pay back, which means years of no contributions from you or the match contribution from your employer.
- Most 401K loan repayment plans require that payments to the loan be deducted automatically from your paycheck, so your take-home pay will decrease. Also the payment isn’t tax deferred, so you will be taxed on it.
- You’ll be taxed on the same money twice, ouch! You are repaying the loan with money that has been taxed and when you withdraw from your 401K during your retirement you’ll be taxed on it again.
- If you quit or are fired from your job, you are required to repay the loan within 60 to 90 days, depending on your plan. If you are unable to pay the loan back during the repayment period, then the IRS considers the loan a distribution. The amount you borrowed is now subjected to income tax, as well as a 10% penalty if you are 59.5 years of age or younger.
Get a jewelry-equity loan instead
The reason many people turn to their 401K when they need cash is they don’t realize they have any other options. Using your jewelry as collateral to borrow money is a great way to keep your 401K intact, borrow money without negatively affecting your credit score, and get money quickly.
Diamond Banc specializes in providing loans to individuals who have fine diamond jewelry and engagement rings, high-end luxury watches and jewelry from top designers like Cartier, Bulgari, Tiffany & Co and more. These items are used as collateral to secure the loan. The loan amount is determined by the liquid wholesale market value of the item. While the loan is in repayment, the item is stored in our secure vault. Once you have repaid the loan, we will return the item to you. If you default on the loan, we keep the item and sell it to recoup the amount you borrowed.
Diamond Banc’s unique loan process
Since the loan amount is determined by the liquid value of the item being pledged, we do not run any credit checks, employment verification or require a repayment guarantee. We also do not report the loan to a credit bureau; so it will not affect your credit score, even if you default on the loan.
The loan process with Diamond Banc is quick and easy. We can usually have funds in your account in as little as two days. Start by filling out a no risk, no obligation loan quote form on our website. Within 24 hours of receiving your submission we will send you our initial offer. After reviewing our initial offer, we will schedule an appointment with you at our conveniently located Boca Raton office. Once your item has been evaluated in person, you will be given our official offer and paid immediately via check or wire transfer.
This post is sponsored by Diamond Banc.