A loan from a 401(k) plan and a withdrawal from a 401(k) plan are two different things, with different consequences.
A loan from a 401(k) plan allows you to borrow money from your own retirement account. You will be required to pay back the loan, usually within five years, with interest. The interest rate is typically lower than other types of loans, but you will still be paying interest on money that would have otherwise been growing tax-free in your 401(k) account. If you are unable to repay the loan, the outstanding balance will be considered a distribution and may be subject to taxes and penalties.
A withdrawal from a 401(k) plan allows you to take money out of your retirement account before retirement age. However, withdrawals from a 401(k) plan before age 59½ are subject to a 10% early withdrawal penalty in addition to ordinary income taxes. Additionally, the amount of the withdrawal will be permanently removed from your retirement account, meaning you will lose the potential for future growth and compounding interest.
In general, it is generally not advisable to take a loan or withdrawal from your 401(k) plan unless it is absolutely necessary. Both options can have negative long-term consequences on your retirement savings, and should only be considered as a last resort.
