A 401k is a terrific option to save money for retirement. Putting money in one helps reduce your taxable income and you often receive a match from your employer. Unfortunately, more people are taking cash out of their 401k plans to help make ends meet. There are typically better choices. These are 11 legitimate alternatives to 401k loans that can provide the cash you need.
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Personal Loan
A personal loan can provide you with several thousand dollars, or more, within a few business days. Depending on your needs, this may be enough to cover your needs.
Depending on your interest rate, a 401k loan may be more affordable, but it leaves your retirement savings intact.
Take Money From Your Savings
Emergency funds serve a purpose. This may be one of those times. If your need doesn’t liquidate your savings, it could be a wise move.
Once you’re able, start immediately to replenish your savings.
Use a Cash Advance App
Cash advance apps aren’t perfect, but they can provide you with an influx of cash to cover short-term needs. The funds are essentially an advance of your paycheck.
This won’t cover a large need, but could help if you’re in a pinch.
Start A Side Hustle
If your need for cash is going to be ongoing, don’t overlook starting a side hustle. Perhaps you have a skill you can monetize on the side, or you can do work like driving for delivery apps to make money on the weekends.
Funnel the cash to your need and your retirement savings remain untouched.
Ask For Extra Hours at Work
Your best choice for extra cash may be right in front of you – your job. Ask your employer for additional hours. If available, throw all of your earnings at your need.
Get Money From Your Employer-Sponsored Emergency Fund
A growing number of employers are offering sponsored emergency funds to help their employees save cash. They operate much like a contribution to a 401(k).
If your employer offers one, and you’re saving in it, consider accessing those funds instead and leave your 401(k) plan alone.
Open A Zero Percent Credit Card
The right credit card can be a legitimate alternative to a 401k loan. A zero percent credit card gives the ability to have no interest charges for at least 12 months, and sometimes 18 months.
Just make sure to make your monthly payments to avoid making your situation worse.
Take Out a Home Equity Loan
It’s never fun to tap the equity in your home, but doing so is a reputable alternative to a 401k loan. You borrow funds from the equity and make monthly payments to repay it.
Interest rates are relatively low, which is helpful if you need a sizable amount of cash.
Reduce Retirement Contributions
This won’t give you money immediately, but it will put more cash back into your bank account. If you combine it with another method, you could put together enough for your urgent need.
Just remember to increase your contributions once able.
Liquidate Company Stock
This isn’t the best alternative to a 401k loan, but if you have company stock through an employee stock purchase plan (ESPP), you can consider selling off some of the shares.
This could create a taxable event, so it’s best to consult your advisor or tax professional before taking this step. If you’re still contributing, you could also pause that to help boost your paycheck if you don’t want to liquidate.
Get a Home Equity Line of Credit
A home equity line of credit (HELOC) is another suitable alternative to tapping your 401k. Interest rates fluctuate, so payments can be unpredictable.
If you need the option to borrow a lot, but with flexibility to borrow what you want, a HELOC could be a good choice.
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I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.
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