year, and he has five years to pay it back. I guess that is a pretty good way to save—"
"Whoa!" said Roy, cutting Tom off before he had a chance to continue. "Think about what you just said. He borrowed for a vacation using his long-term retirement money. That's not only a dangerous habit to get into, but also it could be costly."
"How could it be costly if he's paying himself back?"
"Look at what the market has done during the last year," Roy pointed out. "There have been great returns. He missed those returns, at least on the money he borrowed to go on the vacation."
"When you look at it that way, I guess it was a pretty expensive vacation," conceded Tom.
"Of course, I'm not saying that hard-working people don't deserve to take vacations, but there are better ways to pay for them. Most 401(k) plans have a loan feature," continued Roy. "However, not only do you need to assess the true cost of borrowing, but also you need to understand your specific plan's rules on loans.
"Final quiz, Tom. If you combine all the ideal features of a long-term retirement vehicle—forced savings, tax-deductible contributions, tax-deferred growth, a matching contribution from your employer, and a variety of investment choices—what do you get?"
"My 401(k)."
"Bingo!" confirmed Roy. "Next month, I want to see your pay stub showing that you are contributing to your 401(k) plan."
We all knew that Roy wasn't kidding.
"That's great for Tom, Roy, but what about me? I realize my wife can open a Keogh, but it seems that nothing is