On the surface, borrowing money from your 401(k) account when you face an emergency or a major unplanned expense may not seem like a bad idea. After all, it’s your money; why shouldn’t you use? And wouldn’t you rather owe yourself than a bank or credit card company?

Although these both seem like good reasons to borrow from your 401(k) account, it really isn’t the best solution. Because there are so many repercussions to taking funds out of your employer-sponsored retirement account, it should only be done as a last resort.

Taking money out of your 401(k) plan undercuts the strongest benefit of a retirement account: time. Even a retirement account with a small balance can grow surprisingly large if it’s left to grow for an extended amount of time. Take a minute to experiment with an investment calculator (found on websites like Bankrate.com) to see this growth in action.

Another drawback to taking money out of your employer-sponsored retirement plan is facing the additional risk of having to repay the loan with a relatively short notice. Imagine that you borrow $10,000 to purchase a car. Instead of paying a bank a monthly car payment, you simply repay the loan through a weekly payroll deduction. Sounds good, right?

Now consider what happens if your employer is forced to lay off some of their workforce. Through no fault of your own, you are laid off. Now you must either repay the loan immediately or face having the loan recorded as an early distribution from your retirement account. You will probably have to pay taxes on the money that is still owed and, depending upon your age, you may owe a penalty for the early distribution, as well. That loan doesn’t seem like such a good idea now, does it?

Finally teaching yourself to rob from your retirement fund whenever you face a financial hardship just isn’t psychologically a good thing to do. Although it might be hard to get through the hard time, you would be better served by finding your way through it. You’ll learn to plan for the future without jeopardizing the one you’re already working towards. If you just take money out of your retirement savings to solve your problem, you won’t experience the same hard time, but you won’t learn the valuable lesson that goes with it, either.

In general, it’s best to view your 401(k) account as what it really is: a retirement account. When you finally reach retirement age, you’ll be glad that you left your money where it was.

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We really like Jim Cramer and enjoy watching “Mad Money”. Recently we had the opportunity to read his new book “Stay Mad For Life”. Here are the top 10 things we learned from the book:

1. Put into your 401(k) only what your employer will match because most 401(k) mutual fund options are terrible and too expensive. Invest more as you can into a Roth IRA.

2. Never invest in your employer’s stock in your 401(k). Zip, nada, nothing. If you get laid off and your company is performing terribly, you get hit twice.

3. Never invest in a stable-value fund in your 401(k). It just barely beats a money market fund and has a low return.

4. Never invest in a target date fund in your 401(k). It will be too conservative and way too expensive.

5. Do not invest in all the mutual fund options in your 401(k) and assume you are diversified.

6. Invest your 401(k) in an index fund (S&P 500 Index or Wilshire 5000 Total Market Index). It has low fees and good returns. Most actively managed funds (those that try to beat the market) fail to beat the market 80 to 90 percent of the time.

7. Buy each of your children 1 share of a company’s stock each year on their birthday.

8. Use a Coverdell Education Savings Account or a 529 account to fund your kids college education.

9. Investment breakdown for percentage to be in for stocks and bonds in your retirement portfolio is:
If you are in your:
20’s = 100% stocks
30’s = 10 to 20% bonds and 90 to 80& stocks
40’s = 20 to 30% bonds and 80 to 70% stocks
50’s = 30 to 40% bonds and 70 to 60% stocks
60’s = 40 to 50% bonds and 60 to 50% stocks
Retirement = 60 to 70% bonds and 40 to 30% stocks

10. Cramer’s 5 bull markets for the long term are: Aerospace/Defense, Agriculture, Oil and Oil Service, Minerals and Mining, and Infrastructure.

We highly recommend reading this book, especially for all the valuable information regarding 401(k) plans. If you have the money to spend then by all means go buy yourself a copy. If you are like us and don’t like to spend money, go to your local library and check it out.

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Our 401K plan is currently in a blackout period due to a change in the 401K administrator. The company decided to change the administrator of the plan and it is causing huge headaches in our household. The blackout period is the time when the plan is being switched from the old 401K administrator over to the new one, and it is a time when we have no access to our 401K at all. It is scheduled to last 2 weeks.

First, since we are in this blackout period we have no means through which to track money that is being deducted from the paycheck for 401K contributions. The old 401K account shows that it is empty now and the new 401K account cannot be accessed yet.

Secondly, in an effort to track things on our own, we made a printout of the 401K on the last day before the blackout period started. This allowed us to see the overall balance as well as the allocation of the money by mutual funds. The new 401K plan calls for a complete selling of all the current mutual funds followed by a purchase of the mutual funds that the new administrator offers. I have to say that the new choices are by far inferior to the prior plan and the amount of fees involved have significantly risen.

After contacting the Human Resources Department multiple times, Mr. Not Made Of Money was assured that this new 401K administrator was good for the company because it was saving the company a great deal of money per year. Notice I said good for the company but not necessarily the employees, because the fees are being passed on to the employees. The fees for this new 401K administrator are significantly higher, and the mutual funds they are offering not nearly as good as the prior options under the old 401K administrator.

What we would like to see is a documentation trail showing what the old mutual funds sold at, the purchase prices of the new funds, as well as to see the additional paycheck contributions for the 401K. We’re not holding out much hope that we’ll get to see any of this though, as we’ve been unable to get anyone involved at the company level or the new 401K administrator to commit that we’ll see anything other than a new 401K balance when the blackout period ends.

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