Ashley Patrick, 34, regrets a 401(k) plan loan she and her husband took. The couple, who live in Charlotte, North Carolina, wanted money for a home remodeling project, and it seemed like a sensible strategy.
They were years from retirement. They had one child and were expecting a second, and they needed the extra space. Her husband’s coworkers, who seemed financially savvy, said it was a perfectly reasonable option.
Things snowballed, and not in a good way.
The first problem: The couple didn’t fully understand the loan. Patrick assumed it would use the 401(k) account as collateral – instead of an actual withdrawal. She was shocked to see that the account balance had dipped by $25,000.
Then, about a year into making payments, Patrick’s husband was laid off – and informed he had 30 days to pay back the outstanding balance. That amounted to nearly $20,000, a large sum to have to suddenly come up with. They could not do it.