22News I-Team: 401K loans

CHICOPEE, Mass. (WWLP) - With lots of peopel still at work, many people may be considering dipping into their 401k to make ends meet. 22News reporter Laura Hutchinson shows us why it may cost you more in the long run than you'd expect.

As Americans struggle to recover from the recession many have a pot of cash waiting for them when they eventually retire, that may look tempting now. Experts say touching that 401K should be a last resort. "If you have money elsewhere whether it's a checking account or a cd some other type of non-retirement account, access those first and save the 401K for last or the ira for last." Tim Suffish - St. Germain Investment, Senior VP

A few prequisites to qualify for a 401K hardship withdrawals include a medical emergency, first time home purchase or to pay for your childs education. You have to pay it back and that withdrawal comes with its price. "From experience, at one point I did take some money out of my retirement fund and I just felt like it's going to leave me short down the road." Dwight Hollister - Springfield Resident

It actually may leave you short right from the getgo. Depending on your employers 401K plan, you'll likely have to pay an income tax on it and a penalty. So when you think you're borrowing say $10,000 dollars, after all the fees, it's likely only about $7,000 you're getting, thats on top of the loss of future earnings. You may be able to avoid certain penalties if it's a non-nancial hardships, like a medical emergency.

Experts say taking from your 401K may actually be better than a personal loan because you're paying yourself back with interest but if you lose your job in the meantime.. "if you are terminated, you have 60 days to pay back the entire loan and if you dont you becomes subject to the income tax and the ten percent penalty." Tim Suffish - St. Germain Investment, Senior VP

Best advice, get the specific details of your plan from your employer before making any withdrawls.