The Real Cost of Dipping Into a Retirement Account

Borrowing from a 401(k) might seem harmless, but it can turn into a financial disaster overnight.

A retirement account allows you to save your money before it gets taxed. If you take your money home, you have to earn about $1 to see 75 cents in your paycheck. But if you put that dollar into a retirement account instead, you get to deposit the entire $1. New Africa/Shutterstock

More people are taking loans from their retirement accounts (401(k), 403(b), etc.) than ever, simply because they can. Here’s the problem: seeing one’s retirement account as a savings account, or worse, a personal ATM. That’s so ridiculous I cannot even tell you. Sure, it’s your money, but it’s not your money now. It’s for later. It is out of your reach, so you need to get it out of your mind.

The beauty of an IRS-approved retirement account is that you get to save pretax dollars. It’s no secret that what you see in your paycheck is not the full amount you earned.