Go Ahead, Raid That 401(k)

Laid-off journo struggling to make ends meet? Underpaid flack living on ramen and PB&J? A new paper from the Federal Reserve says it’s sometimes OK to dip into your 401(k) savings.

New Evidence on 401(k) Borrowing and Household Balance Sheets by Fed economists Geng Li and Paul A. Smith maintains that, in some circumstances, “401(k) borrowing can, indeed, be advantageous to household balance sheets … and can be significantly cheaper than other types of borrowing — particularly credit-card borrowing, which frequently carries interest rates of well over 15 percent.”

The economists estimate that Americans could have saved over $5 billion in 2007 by dipping into their 401(k) plans rather than financing their important purchases with plastic.

The catch: Many employers can demand repayment within a very short timeframe if the worker loses his job—sometimes as little as 90 days.

And it goes without saying that if you’re borrowing money to pay for a flat-screen TV or Macbook Air, maybe the 401(k) money should stay where it is.