• It doesn’t affect your credit score. Your 403(b) loan is technically not a debt, so it doesn’t affect your credit score and your chances of getting approved for a traditional loan.
• You don’t have to return early withdrawal. If you cash out on your retirement savings, you don’t have to return the money to your account.

• You’re taxed twice essentially. Your loan repayment comes from your after-tax income, and then you pay full income tax when you get your distributions.
• You pay penalties and taxes when you default. If you default on the loan, you have to pay a 10 percent penalty plus income tax on your entire loan amount. Your early withdrawal is also considered an income and is therefore taxable.
• There’s an opportunity cost. Your retirement account is designed for long-term investments. Taking out loans and early withdrawals from it can stunt the growth of your assets.

Should You Borrow from Your 403(b)?

In general, you should not take money out of your 403(b). It’s not an emergency fund but an investment account that should grow over time to ensure your future financial stability. Taking out money makes you miss out on investment gains, and if you borrowed money when the market is down, you may not be able to recoup the losses.

Taking out a loan from your 403(b) retirement plan is quite similar to the usual loan application from other lenders. But with 403(b), there’s no credit check conducted and the process is rather quick.

You must secure a loan application form from your 403(b) plan provider, such as this one from Aspire. Your employer usually chooses the 403(b) provider but may allow you to choose your own from a list of predetermined vendors. Weiterlesen