Don't borrow from a 401(k) retirement plan to pay for college

by Brian C. Greenberg

Personal Finance

May 2006

Parents should remain focused when it comes to a 401(k).  It should be money for retirement and nothing else.  Any loan against a 401(k) must be repaid within five years, assuming the borrower remains with the same employer.  If there's a change of employer, the 401(k) loan becomes due immediately.  And if the borrower cannot repay the loan when it's due?  Expect an effective taxable borrowing rate of more than 50 percent on the distribution!

Brian C. Greenberg is a Marlton, New Jersey CPA and certified college planning specialist.  He hosts the television show "College Bound."