The temptation to borrow from your 401(k) intensifies during the family years, when competing financial demands strain budgets—college savings, larger homes, childcare, and activities. Most plans allow borrowing up to 50% of your vested balance or $50,000, whichever is less, with five-year repayment terms (longer for home purchases).

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The apparent advantages—reasonable interest rates, no credit check, and “paying yourself back”—can be misleading. The true costs are substantial:

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Lost compound growth: Money borrowed at age 40 would have 25+ years to grow, but that growth is permanently stunted or lost.

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Double taxation: You’re converting pre-tax retirement savings into after-tax loan repayments.

Reduced take-home pay: Repayment obligations can prevent you from maintaining contribution rates, causing you to miss out on employer matching contributions.

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Job loss risk: Most plans require full repayment within 60 days of termination. During the family years, when job changes are common, this can create forced repayment or convert the loan into a taxable distribution plus a 10% penalty.

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If you must borrow from your 401(k), protect future savings by maintaining contributions even while repaying the loan. Use this option only for true emergencies, never for discretionary family spending.