401(k) Center: Employee: Taking a Loan

Your 401(k) is a long-term investment and should be treated as such.  Removing funds to meet a short-term goal is not advisable.  However, we understand that life happens and want you to be fully informed of your options.

Most employers will allow a loan from your 401(k) up to 50% of your vested 401(k).  The advantages of this type of loan over others is that you will likely not be subject to a credit check, interest rates are typically set at 1% or 2% over the prime rate (currently 3.25%) and the interest repaid goes to you rather than to a bank.  It is also convenient in that repayment installments can be deducted directly from your paycheck and you avoid taxes on the interest until you remove money from the plan in retirement.

Alternatively, outstanding balances and associated interest are identified as a taxable distribution which can come with additional penalties if you do not meet the guidelines for a qualified distribution.  If you leave your job you are required to repay your 401(k) loan in full within 60 days. And, of course, any money withdrawn from your 401(k) is a missed opportunity for your retirement.

If you are still interested in taking a loan from your 401(k) the first step is to speak with your plan administrator (your employer’s Human Resource Department will be able to direct you to the best point of contact) for a loan application.  They will be able to help you complete and submit the application as well as establish a plan for loan repayment.  Contact Hillspring Financial, Inc. to review how a 401(k) loan will affect your portfolio and overall retirement plan.