Most parents have savings and investments to pay their children’s college cost. Those who have not prepared enough, however, may find the need to tap their retirement accounts, such as their 401(K). If you’re contemplating on loaning from your 401 (K) to augment your college funding solutions, here are some things you should be aware of.
It significantly reduces your overall retirement funds. Borrowing from your account limits the growth of your earnings. For instance, if you take out a $25,000 loan, that amount won’t be earning any interest all throughout the loaning period. Therefore, you lose not only the gains from the accruing interest but also from compounding and tax deferral.