Calculator Tool Reveals 401(k) Loan Damage

When a participant suggests taking a 401(k) loan, maybe it’s time to bring out the numbers.

The National Center for Policy Analysis (NCPA) has developed a calculator that shows 401(k) participants just how expensive taking a plan loan can be.

In an announcement, the NCPA said its 401(k) calculator can help determine how much a loan will cost in terms of lost savings and investment opportunities. NCPA recommends participants access the calculator in order to: make annual comparisons of projected 401(k) balances, with and without a loan, from the year the money is borrowed until the year of retirement, as well as compare monthly income at the time of retirement, with and without a loan, based on a 30-year fixed annuity.

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An NCPA analysis found that a 35-year-old worker who borrows $30,000 over a five-year period, could end up with $192,794 less in savings at retirement (age 67) than if he had not borrowed.

“People don’t realize how much retirement money they’re giving up by raiding their 401(k) accounts,” said Pam Villarreal, NCPA senior policy analyst, in the release. “Even in extreme situations, it’s best for people to seek other sources of capital before tapping into their 401(k) accounts.”

The free calculator can be accessed here.