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Bottom Line Up Front

  • When money is tight, your first reaction shouldn't be to borrow from your retirement account.
  • See if you can make ends meet by tightening your budget or working a temporary side gig.
  • If a loan is your best option, look into a personal loan or even a home equity loan.

Time to Read

3 minutes

May 8, 2022

Borrowing money has become an accepted part of everyday Americans’ personal finances. It’s the way many finance college, make a down payment on a home and achieve their personal goals.

When faced with pressing financial needs, you may be looking for a fast solution and might be tempted to turn to your largest account—your retirement plan. But, you may not have thought through all your options, including an early withdrawal penalty from your retirement savings or investment retirement account (IRA) and the federal income tax you'll need to pay.

First, Decide If Borrowing Is Even Necessary

While credit cards, loans or lines of credit are valuable resources, there may be other ways to achieve your goal that don't involve promising to pay money back in the future. After all, those promises could impact your credit score or lead to high-interest debt. 

  • Could a side gig or temporary part-time work help satisfy your financial need? 
  • Can you renegotiate loan repayments or terms with your creditors?  
  • Are there places in your budget where you can cut back in the short term or over a longer timeframe?

Consider Your Borrowing Alternatives

If none of these methods work for you, do some research to learn what might best meet your financial goals. 

  1. After considering all your options, you may decide that a loan would be the best solution. Once you’ve determined your loan amount, you can decide which loan type would make sense and plan a repayment schedule that highlights all your due dates.
  2. A personal loan is a good starting point because it can provide funds for a variety of needs, from debt consolidation to education expenses. At Navy Federal Credit Union, we offer loans for as little as $250 and as much as $50,000. Often, the money can be transferred to you pretty quickly once approved—in some cases on the same day.  Personal loans are either secured or unsecured. In a secured loan, you pledge an asset, such as a car, as collateral to guarantee the lender will get repaid, one way or the other. You’ll still own the asset (unless you fail to repay the loan). An unsecured loan is based on your creditworthiness and doesn’t require you to use collateral. 
  3. If you’re a homeowner, you may be able to borrow money using your home’s equity as collateral for a home equity loan. Home equity is the difference between your home’s current appraised value and the amount you still owe on your mortgage. For example, if your home is valued at $300,000 and you owe $200,000 on your mortgage, your home’s equity is $100,000. You may be able to take out a loan for a percentage of that amount, depending on your credit score and your lender. One benefit of a home equity loan is that the interest rate can be lower than that of other unsecured, personal loans.

Understand the Ramifications of Borrowing From Your Employer's Retirement Account

If you have no choice but to use your retirement funds, it’s important to understand what you can expect and how this can affect your taxable income.

Employer Retirement Account Loans. You can borrow from your retirement account and pay back that loan over a repayment period, with interest. Since you’ll be paying back the loan balance, it will have a lesser negative impact than just making a withdrawal. Some things to keep in mind:

  • Funds withdrawn in a loan can be subject to income tax and potential early withdrawal penalties. 
  • You could end up paying taxes twice. You’ll repay your loan with money that’s already been taxed and then potentially pay taxes again when you withdraw the money in retirement.  

Employer Retirement Account Hardship Withdrawals. If you believe you won’t have the available funds to repay a loan, a hardship withdrawal may be an option. Many retirement plans allow hardship withdrawals, but typically only under extreme circumstances, such as unreimbursed medical expenses or to prevent foreclosure. 

Next Steps Next Steps

  1. Find out where your money is going now with a monthly spending calculator, with an eye to which expenses you can cut back on.
  2. If you already have debts, use a payoff calculator to see how long it will take you to eliminate them under various scenarios.
  3. For help sorting through the resources and strategies available to you, make an appointment with a Navy Federal personal finance counselor.


Navy Federal Financial Group, LLC (NFFG) is a licensed insurance agency. Non-deposit investments, brokerage, and advisory products are only sold through Navy Federal Investment Services, LLC (NFIS), a member of FINRA/SIPC and an SEC registered investment advisory firm. NFIS is a wholly owned subsidiary of NFFG.  Insurance products are offered through NFFG and NFIS. These products are not NCUA/NCUSIF or otherwise federally insured, are not guaranteed or obligations of Navy Federal Credit Union (NFCU), are not offered, recommended, sanctioned, or encouraged by the federal government, and may involve investment risk, including possible loss of principal. Deposit products and related services are provided by NFCU.Financial Advisors are employees of NFFG and are employees and registered representatives of NFIS. NFIS and NFFG are affiliated companies under the common control of NFCU. Call 1-877-221-8108 for further information.

This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.