November 4, 2011
High unemployment, rising credit card debt, restrictive lending and a sluggish economy have many people looking for a quick cash option. A research study authored by Brigitte C. Madrian, John Beshears, James J. Choi and David Laibson, “The Availability and Utilization of Plan Loans,” (HKS Faculty Research Working Paper Series RWP11-023, June 2011) reveals that loan provisions are included in 90 percent of 401(k) plans.
Additionally, more than 1 in 5 participants have taken loans from their plans at one time or another and, over a 7-year period from 2002 to 2008, almost half of all participants borrowed from their plans. Based on this surprisingly high use of 401(k) plan loans, an obvious question arises: Is this really a good idea? As with all financial decisions, individual needs and circumstances must be considered. But certainly there are important considerations anyone should understand before taking a loan from a 401(k) plan.
Tags: 401(k), Megan Riley, Megan Riley J.D. LL.M