A 20-something woman recently asked what I thought about borrowing from her 401K plan to take a vacation.  She said she was about $1,000 short for the trip and, since she was only going to borrow this amount for a short time and then repay it, didn’t see the downside of doing so.  As I told her —  DON’T DO IT.  Your 401K monies should be considered off-limits for anything except a dire emergency (in which case you may be able to take a “hardship withdrawal”).  You  may have the best of intentions for repaying it, but things always come up and, if retirement is a ways off for you, it’s going to be easy to rationalize foregoing payment.  In addition, for every day you have money withdrawn from your plan, you’re missing out on having that money work for you. 

My suggestion to her was to save up for the trip of her dreams without reducing the amount she put into her 401K.  If it was only $1,000 that she needed, and knew that she was going to be able to pay that amount back in a short time, then it shouldn’t take her long to save it.  Once she has the money in hand up she can take the trip guilt-free and really enjoy it. 

Your 401K is for retirement, period.  With any luck you’re going to live to be an old lady and it’s better to be a rich old lady who learned to postpone immediate pleasure for long-term gain, than a poor one with nothing but fond memories.   

TAGS: 401K, retirement planning, retirement savings, vacations