2018 Q2 LIFE@reliance Newsletter

B E N E F I T S

If you're in a situation where you need extra cash now, you may be peeking at all your accounts to see what you can tap. While your 401(k) savings may seems like a good place to start, here are important factors to consider before taking money from this account: Before Borrowing from Your 401(k) Account Savings... When you tap 401(k) plan savings, you are taking a loan from your account – one you are required to repay. So, before you initiate that loan, be sure you can afford to take the immediate hit to your paycheck and cash flow. 2. BORROWED MONEY IS NO LONGER WORKING AS HARD FOR YOU. Sure, the cash you take out is helping you with some short-term needs. However, at the same time, you lose the long-term growth potential that your money could've had within your 401(k) account. We're talking about compounding interest, potential dividends, and participation in any growth in the markets – lost opportunities. You have to weigh whether you can afford the potential long-term hit to your savings. 3. 401(K) LOAN REPAYMENTS FACE DOUBLE TAXATION Unlike your 401(k) contributions, which are made with pre-tax (or before-tax) dollars, your 401(k) loan repayments are made with post-tax (or after-tax) dollars. This means that a $100 loan 1. IT'S NOT FREE MONEY – IT'S A LOAN.

57% of people who take 401(k) loans decreased their contribution rate during the payback period. 50% of people who take a loan from their 401(k) savings wind up taking another.

repayment reduces your take-home pay by the full $100. Worse, when you take the money out of your 401(k) plan during retirement, you will pay tax on that same money again. 4 . IF THINGS CHANGE, YOU COULD LOSE EVEN MORE MONEY If you voluntarily or involuntarily terminate employment, go on disability or an unpaid leave of absence, or for any other reason experience an interruption in your regular paychecks, you need to make alternate arrangements to make your loan repayments. Should you find yourself in a position where you are unable to repay the loan, it may be treated as a withdrawal and the outstanding loan balance will be

subject to current income taxes in addition to a 10% early withdrawal penalty if you are under age 59½. If the interruption in your pay is temporary (for example, short-term disability or an unpaid leave of absence), the loan repayments may be increased – sometimes dramatically – when you return to work and begin receiving regular paychecks again. THE BOTTOM LINE When you are looking across your accounts to see where you can tap money, you'd be wise to consider your 401(k) account as a last resort. Your money is working hardest for you in that account – and borrowing from it comes with some potentially costly strings.

ISSUE 13 | APRIL 2018 3