Borrowing against 401k

[thebigd]

What is the name of your state? Kansas

My employer will not let me take a loan against nor take an early dispersement of my 401k. He says the only way I can get the money is quit my job. Can I use my vested amount for collateral for a personal loan from my bank?

 

[pattytx]

An employer's plan does not have to offer a loan provision. How would we know what your bank would accept as collateral? Take your most recent 401(K) statement to your bank and ask them.

 

[efflandt]

I doubt if a 401k could be used as collateral for a loan from a 3rd party since they would have no way to recover that money on default (exempt from bankruptcy). Your employer can at least deduct it from your paycheck. I know that it is illegal to use an IRA as collateral for a loan.

The employer typically sets any rules about borrowing from a 401k, and if you are no longer employed there, the loan becomes immediately due and payable (or would be considered a distribution with applicable tax/penalty). Even though the interest is paid to yourself, the entire loan is paid back with taxed dollars. For these reasons, borrowing from a 401k is a bad idea.

You could probably get a better interest rate elsewhere if it is for something with collateral, which may be tax deductable if used for your home (not deductable for any reason if borrowed from 401k).