Think twice about borrowing from retirement funds

​If you decide to take a loan instead, the amount will be limited to $50,000 or 50 percent of your vested account balance, whichever is less. You’ll be selling shares to generate cash, with

five years to repay the loan. As you do, you’ll buy back shares, likely at a higher price. “You may miss the best days and years in the market,” says Paresh Shah, a CFP at PareShah Partners

LLC in Hicksville, New York. You’ll also pay interest, but you’re paying it to yourself. You can easily pay off the loan via payroll deduction — but you will pay with after-tax dollars.

Taxes will be due again when you take qualified distributions in retirement. What’s more, it’s likely that you won’t have the money to continue regular contributions to your account. In

fact, some plans require you to stop contributing for a time after the loan. Should you leave your job — voluntarily or not — you’ll be required to repay any outstanding balance within a

year. Otherwise, the IRS will consider it a distribution and you’ll owe taxes on it. If you’re younger than 59½, you’ll pay a 10 percent penalty on top of income tax. What are the benefits?

The money won’t be taxed if you follow the rules and the repayment schedule. “Also, it may be a lower-cost alternative to other sources of cash, as the interest rate may be lower,” says

Nicole Sullivan, a CFP at Prism Planning Partners in Libertyville, Illinois. “And it won’t affect your credit report.” But you’d better create a plan to pay it off, and stick to it, Chen

says. “The longer you postpone putting the money back, the more growth you’ll be giving up.” 3. CONSIDER THE RULE OF 55 IF YOU CAN RETIRE EARLY How about the Rule of 55? If you’re between

age 55 and 59½, and you’ve decided to stop working, this provision allows you to take 401(k) withdrawals — without the 10 percent penalty. “To be eligible, you’ll need to leave your job

during or after the calendar year in which you turn age 55,” says Mark Charnet, the founder & CEO of American Prosperity Group in Pompton Plains, New Jersey. “However, you can’t quit

your job at age 50 and ask to start early distributions at age 55 — unless you qualify for a hardship withdrawal.” Check with your company to see if it offers this benefit. Not all

companies do. 4. YOUR ADVISER MAY SUGGEST BETTER ALTERNATIVES ​Fortunately, there are cheaper ways to raise cash — a home equity line of credit (HELOC) or a bank loan against the cash value

of your life insurance policy, Shah says. Sullivan suggests looking to your Roth IRA. You can withdraw principal penalty-free at any time. And if you’re older than 59½, Roth earnings can be

accessed without taxes or early withdrawal penalties after a five-year holding period. Chen says a home equity loan may be attractive. The interest rates are usually low, and you avoid the

tax and penalty that come with a 401(k) loan. “Still, home equity loans usually have variable interest rates. Rising rates may provide a nasty surprise.” NOTE TO SELF: BUILD THAT EMERGENCY

FUND