Here’s When a 401(k) Loan “Makes Sense,” Says an Advisor

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Taking a loan from your 401(k) savings is generally a bad idea — but using the money as a short-term “bridge loan” can be an exception, according to Blair duQuesnay, a New Orleans-based certified financial planner.

“I’ve always been very opposed to 401(k) lending,” duQuesnay said. “However, I have found that there are instances in which it makes sense.”

In fact, she recently used this strategy herself when buying a new home. DuQuesnay, an investment adviser at Ritholtz Wealth Management and a member of CNBC’s advisory board, used a 401(k) loan as a short-term pot of cash for a down payment.

The retirement savings loan served as a bridge loan that duQuesnay plans to repay after selling his old home. She has no intention of selling until she has moved in and done some repairs.

This can be a good strategy for those whose budget can absorb monthly mortgage and 401(k) loan repayments, she said.

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Retirement savers shouldn’t borrow from their 401(k) to meet their day-to-day cash flow needs, which would speak to a larger budgeting issue, she said.

Of course, 401(k) loans have drawbacks, duQuesnay said.

For example, you take that money out of the stock market, which means you’ll miss out on investment income during the repayment period, which can typically be up to five years.

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