Don't touch your 401k

It's tempting when things are tight to tap that source of money. Suzanne Lucas, an HR specialist, lines up some reasons not to

1. 401k loans are called when you leave your job. It doesn’t matter if you are fired, laid off, get sick and have to leave, have a baby and want to stay home with it, found a new dream job, or want to join the Peace Corp.  When you are no longer employed by that company, your 401k loan is due shortly thereafter.  If you can’t pay up, you have to pay taxes and penalties on the loan amount.  And if you can pay up, what are you doing taking the loan in the first place?
2. Your job is not secure. Yes, I know you think that your job is secure.  I’ve laid off thousands of people who once thought their jobs were secure, too.  Your company could hit a rough patch, take a new direction, get bought out, or just decide they don’t like you. Trust me on this one.  Your job is not secure.  And all the HR lady (even a nice one) can do is offer sympathy.  We can’t change the rules that make the 401k loan due upon termination.
3. You can’t change jobs. With a 401k loan hanging over your head you are trapped in your current company.  If a headhunter calls up and your dream job appears, do you really want to be trapped by the $10,000 loan you took out?
4. If you don’t have the money now, what makes you think you’ll have extra to repay the 401k later? Save up for what you want first, rather than making payments on what you’ve bought.  If you can’t save the money now, you won’t be able to make the payments either.  This will add stress to your life, and you don’t need this.
5. It ruins your dollar cost averaging. Okay, that’s financial speak not normally uttered by HR people such as myself.  But, essentially, taking a little bit of money out now can cause big differences in the long run.  Joshua Kennon explains more about dollar cost averaging at About Investing for Beginners.

I would add: check the fees on the funds in your 401k; often they are too high. Index funds, if they are offered, are usually cheaper. Also look to rebalance your asset allocation. You started with an allocation in mind, right?