401k
401k Information

Loan Against 401k

With the popularity of the internet based money lenders, people can now relax when it comes to their financial matters. There are so many schemes available that too, so easily that people can count on these money lenders for almost all of their needs. You can get loans even if you are unemployed, if you have a bad credit or even if you are planning a new venture. Among the different schemes available with these money lenders, there are no credit check signature loans.

The signature loans are also basically the payday kind of loans. As with the payday loans, these loans can also be availed by the UK residents who are above 18 years of age and carry a checking account. You also need to have a regular income. As these are very short term loans, it does not matter if you have a good or a bad credit. You can apply confidently even if you have a bad credit.

The procedure to avail no credit check signature loans becomes very easy if you apply on the internet. All you have to do is to log on to the internet and fill in a simple application form. This form asks some simple questions about your income and expenses. It is always better if you fill in all the fields. Incomplete or incorrect information can lead to delay in the processing of the loans. It will not be rejected right away. Most of the money lenders on the internet carry a zero per cent loan rejection ratio.

The no credit check signature loans require you to pay off the debt in stipulated time which can be few weeks to one or two months. Under special circumstances, this tenure can be extended. The monthly installment is directly deducted from your bank account as you have to authorize the money lender to withdraw the money on a specified date. Make sure that you have money in the bank on the due date otherwise you have to suffer double penalty: one from the bank and the other from the money lender.

Frequently Asked Questions

  1. QUESTION:
    I took out a loan against my 401k two years ago and I still owe 7,000 dollars. I am about to changes jobs?
    I took out a loan against my 401k two years ago and I still owe 7,000 dollars. I am about to changes jobs and want to know what the least painful way to handle this would be. I have been told I can just take the hit on my taxes(and pay an outrageous interest rate) or take out a loan somewhere else to repay the 401k. Just wondering if I have any other or better options.

    • ANSWER:
      not really – you wouldn’t pay any int rate by choosing a taxable distribution – you have to pay taxes on the 00, plus 10% penalty – so figure 30-38% x 00 is what you would owe come tax return time

  2. QUESTION:
    Do you have to pay off a loan against a 401k if you are changing jobs?
    I recently took an offer to work for a different company. I have a loan out against my 401k with my previous employer. I have two more checks coming from them that will take out a weekly amount towards my loan. Am I then obligated to pay the rest right away? Any insight would be greatly appreciated. Thanks

    • ANSWER:
      Unpaid 401k loans are treated as a distribution. You have to pay regular income tax on the amount borrowed plus a 10% penalty.
      If you can’t pay it back, take the hit and move on. It was your money anyway. BTW usually there are better ways to take out a loan. The advantage to a 401k loan is you pay back the interest to yourself. Plus they take the payments right out of your check.
      Not bad at all. But I prefer to leave my retirement money alone for when I retire. But your situation doesn’t sound so bad. How much was it for? Maybe you could alter your witholding at your new job so you won’t have to shell out at tax time. (You could file 0 dependants and have them withhold a few dollars extra.) You just have to figure what wasn’t paid back as additional income and roughly figure the tax on that. Plus 10% of the distribution.
      Should be roughly one third of the outstanding balance. Not the end of the world.

  3. QUESTION:
    1st time home buyer. I would like to use my a loan against my 401k which I will be paying back?
    Would it be better to use my 401k money for the down payment and closing cost, instead of hard cash. This is not including a bank loan.

    I am a first time home buyer. Thank you.

    • ANSWER:
      If you have the cash- why would you borrow from your 401k? As for closing costs- ask the seller to pay them- pretty common in most parts of the country. Good luck!

  4. QUESTION:
    Take loan against 401k or Balance Transfer to credit card?
    I have about 00 between a credit card and a student loan (avg interest rate is 8%)…I am thinking about doing a balance transfer to a credit card at 3.9% for the life of the balance transfer or pulling money out of my 401k. Which makes more sense? Loans against 401k is with an interest rate of 5.25% for a term of up to 60 months (with about 0 in fees).

    Also, if I could do 0% for 15 months on a credit card balance transfer – would you recommend that?

    • ANSWER:
      401K loans are almost always a bad idea. You get taxed twice, and depending on your age, you could lose out on a ton of $ when you retire. Once you’re contributing enough to your 401K to get the maximum match from your employer (typically 6% of salary), open a Roth IRA and contribute some money each year. You can take a loan from your Roth IRA without penalty (it works great as an emergency money source).

      I would do the 0% balance transfer and work hard to pay off the debt in the next 15 months. If after 15 months you haven’t paid it off, find another 0% balance transfer deal and do it again. When money was tight I used this method and it worked great, just be sure to read the fine print so that you don’t get hit with transfer/cash advance fees.

  5. QUESTION:
    How do you rollover a 401k into an IRA if there is a loan against the 401k?
    I just got laid off and I have to pay back k into my company 401k in a month.

    What are my options so I avoid the tax and penalties if I don’t pay on time? I heard I can rollover the difference into a rollover IRA. Is this true?

    • ANSWER:
      If you do not payback the loan, then unfortunately it will become a taxable distribution. This means that when you file your income taxes the outstanding loan balance will need to be included in your Gross Income. How this affects your return will depend on what tax bracket you fall into. Also, depending on your age, you may have to pay a 10% penalty on the distribution (,400).

      For more information, I would seek the opinion of a tax professional on your individual tax situation.

  6. QUESTION:
    Can I take out a loan against my 401K after being laid off?
    This seems like a simple question but I haven’t been able to get a straight answer from the various sources I’ve looked at. All the literature on 401(K) loans seems to assume you’re employed. I’m 100% vested, but I’d rather take out a loan than withdraw money outright.

    Thanks.

    • ANSWER:
      No, as you stated loans are for the employed. Logic behind that is because they are optional offerings and the documents all state that repayments must be made via payroll deduction. No employment = no payroll. Also, same documents state that repayment happens upon separation of service. Again, no employment = separation from service. Way too expensive and onerous to administer if checks were coming in from terminated participants. Also liability is tremendous if loans start not getting repaid. One of the requirements for offering loans is that they are not sham loans and have an expectation of repayment. Can’t guarantee that if you’re handing them out to termed participants who can take distributions if they need the money.

  7. QUESTION:
    Should I take out a loan against my 401k and?
    I’m thinking of taking out a 25,000 loan at 4.5 % and then buying 25,000 dollars of BP stock. It’s going back to a share and we all know it. Should I do it? How low should I let the stock go before I buy in.

    • ANSWER:
      Funny, but I don’t share your enthusiasm for BP’s quick return to profitability. I’m sitting on a cash position of nearly 35% yet I’m not touching this one yet—far too many unanswerables.

      Risking retirement funds with the oft-voiced penalty arrangement to say nothing to the difficulty of restoring debt should you go ahead with your redemption—really a bad idea. And if you should lose your job, even due to temporary layoff—then you’re really screwed.

      Often I’m asked to define the difference between investing and gambling. I think you’ve just done it!

      Every variable obfuscates the likelihood that you’ll bring this one off because there’s nothing you can control. There’s a huge question regarding the continuation of the high yield and that’s just one little part of this. I believe the Administration has determined that BP must become today’s poster child for all that’s wrong with capitalism as opposed to socialism. While we’re being told BP has enough cash to weather any storm, even Noah’s ark has yet to be found and it’s to be assumed it was beached. Moral of the story: Even the best laid plans don’t always work out.

      This is a bad idea, right down to your statement: “How low SHOULD I LET THE STOCK GO…..?” When you decide how low you’ll let it go, I hope you’ll give me a call. LOL I’m not trying to make you feel silly, just hoping to help you see that this is one heck of a gamble that could have this company in the pits for three years while you suck up and sacrifice important cushioning. You have no say in how things develop but I see nothing good on the horizon.

      Len

  8. QUESTION:
    loan against 401k . off work for medical condition. and unable to make payments to 401k loan .?
    was notified it was in default. due to my situation and lack of funds default was not a bad thing. upon returning to work i was told i owe the company for them paying my benefits while i was off. they also said they were going to get my loan out of default and i would be required to play catch up on the payments via payroll deduction. the way it stands i will be taking home less than 1,000 a month .can they do this to me?

    • ANSWER:
      i believe they can. the next time that you are out of work for any reason, notify your carrier and get your loan suspended until you can start back making payments

  9. QUESTION:
    What is the affect of a loan against a 401K in a declining market?

    • ANSWER:
      You still have to repay the full amount of the loan, regardless of what the investments in your 401(k) account are doing.

  10. QUESTION:
    A question about a loan against 401k?
    This is just a general question, not something i’m considering doing.

    A person has a 401k and is concerned about loosing it in this economic environment. What if they take out a loan against it, bank the proceeds (or put it under a mattress), and use the proceeds to make payments on the loan. What would happen if very soon after doing this the company goes under?

    Has this person secured their 401k – or at least the portion they have left of the loan? Would they have to continue to pay back the loan? Would the event of the company going under trigger tax penalties for the investor?

    TIA.
    thanks for all the replies. :-)

    • ANSWER:

  11. QUESTION:
    How can someone take out a loan against their 401k?

    • ANSWER:
      IF you plan allows loans, and not all plans do, you have to contact the plan administrator. Your payroll department can tell you how to contact them. Most plans that allow loans limit you to 50% of the balance and require automatic payments by payroll deduction.

      I personally recommend against 401(k) loans. WHEN you leave the company for ANY reason, the balance is due in full in 60 days, or it becomes an early withdraw. In case of a job lose, this means you have a large payment due at the worst possible time.

  12. QUESTION:
    Can interest earned on a loan against a 401K for home improvements be counted as mortgage interest?

    • ANSWER:
      The home mortgage interest deduction is any interest you pay on a loan secured by your home. Since you borrowed using your 401K as the security, it is not deductible. For more details, see the attached link to the IRS pub. on Mortgage Interest Deductions.

  13. QUESTION:
    Can you take out a loan against an IRA that was originally a 401K?
    To be more specific, I currently have a 401K plan with my current employer. I can take a loan against it. But let’s say I resign from my job, convert the 401K to a traditional IRA (to avoid any distribution at that point), can I later take a loan against that IRA (just like I could’ve when it was a 401K)? Thanks in advance!!

    • ANSWER:
      No. Loans from IRAs are not permitted by law – only withdrawals.

  14. QUESTION:
    do payments towards a 401k loan count against the contribution limit?
    Example: I pay off a loan with a lump sum payment of ,000. Can I still contribute ,500 for the year, or now only ,500?

    • ANSWER:
      loan repayments are not contributions. You can still contribute 15,500.

      to the plan that loan is another asset no different than the S&P index 500 fund. The fact that it’s YOU who got the loan and are making the payments is irrelevent.

  15. QUESTION:
    Would the amount deducted from my paycheck for a 401k loan be included in a child support calculation?
    I have a loan against my 401k account and an amount deducted automatically from my paycheck each time to pay back that loan to my 401k account. Would that monthly amount that is deducted get included in the calculation for child support? State of Tennessee.

    • ANSWER:
      The reason child support is based on GROSS is that I can easily arrange to automatically deduct my entire pay for various reasons. Your child support would be computed on your pay BEFORE the loan payment is deducted.

  16. QUESTION:
    How much taxes are paid on a 401k loan?
    I took a loan against my 401K for 00 (not a withdrawal), payable over the next 5 years through automatic deductions from my paycheck. If I leave my company, I have 90 days to repay otherwise it gets considered a distribution. What does that mean? What would my estimated fees be next time I file taxes?

    • ANSWER:
      Your regular tax rate plus a 10% penalty.
      Keep in mind that this could possibly throw you in a higher tax bracket.
      Keep some money handy.
      /

  17. QUESTION:
    How long does it take for a loan against your 401K to go through? I’ve heard everything from 7- 30 days!?

    • ANSWER:
      depends on your 401K holder and system. Where I used to work it was 5 business days.

  18. QUESTION:
    I took a loan out from my 401k for my home. When I refi should I take extra and pay off the 401k.?
    I understand by taking the loan against my 401k it decreased my earning power. So I am thinking by making my 401k whole once again sooner and not later I will be better off. Am I proceeding in the right direction by doing this or should I just keep the 401k loan where it is?

    • ANSWER:
      If the terms of your refinancing allow it, then yes, repay that 401(k).

      However… This is a down market. Your 401(k) could possibly diminish in value once it has been repaid. You could take some of the money from your refinancing, earmark it “for the 401(k) loan,” and stick it in a high-interest online savings account. Right now the bonds and mutual funds that make up your 401(k) are dropping in value, but the loan is increasing in value because of the interest. The money is liquid and accessible in case you have to pay the loan back all at once, but so long as the interest rate on your account is better than the growth rate of your hypothetical 401(k), you’re better off.

      1. Do not even attempt this unless you have the discipline to put many thousands of dollars in an account and not touch them.

      2. This is not a way of making money, only of stuffing more money into your 401(k) than you would otherwise be allowed to.

      3. This only works when the market is on its way down. Things could go back up at any time and you would have missed out on the opportunity of purchasing new 401(k) assets at low prices.

      4. It depends on the interest rates, which right now have gone down because of the Fed, making this option less attractive.

      5. Keep an eye on the interest! Chances are, the rate on your loan is higher than anything you could get in an online savings account. If you keep this up too long, the loan will become bigger than you can repay quickly.

  19. QUESTION:
    If I have a loan against my Fidelity 401k, can I still take out a hardship withdrawal?
    We are about to purchase a home and would like some extra cash for unexpected expenses.
    “Just there” – as a matter of fact – it is considered a hardship – my husband was able to withdrawl from his 401…a “hardship withdrawl” as a matter of fact…because we were purchasing a home.
    Thanks anyway

    • ANSWER:
      No you cannot. You would have to pay the loan in full and buying a house is NOT considered a hardship

  20. QUESTION:
    Using 401k loan for home purchase?
    I am planning to take a loan against my 401k as funds for a down payment on a new home. Does the repayment amount of that loan count against my debt ratios for qualifying for a mortgage? Or is that amount excluded since it’s really my money anyway?

    • ANSWER:
      I’ve been processing and underwriting loans for 12 years, and I’ve never seen anything on a credit report about a 401(k) repayment. The payment will probably be deducted from your pay checks. That wouldn’t affect your gross pay, which is used to determine ratios. I don’t know for sure, but I don’t think it will affect your debt ratio. You should ask your lender.

  21. QUESTION:
    I am thinking about leaving my job. I have a loan against my 401K. Do I have to repay the loan in full?
    I borrowed the money to pay for the construction of my new home. I am in the third year of the 10 year loan. The loan was for ,000.

    • ANSWER:
      Generally yes, the loan would be called due. Which means they’d effectively liquidate that amount, and you would owe taxes and penalties on it.

      I hope your new job pays a lot more than you get now. Otherwise it may not make sense to switch.

      Any chance you could take out a home equity loan to pay it off? Hopefully that K you put into the house is now equity that can be borrowed against.

      This is the one main danger of borrowing against a 401k, leaving and getting smacked with penalties and taxes if you can’t find a way to pay it off right away.

  22. QUESTION:
    Is taking a loan against your 401K ok?
    I am 23 years old and I wish the current law was in effect was I was 18 years old. I was stupid and got myself into horrible credit card debt. I live by myself and am trying desperately to get it paid off because my student loans are going to becoming due in a year.

    I currently have ,000 in my 401K plan at work and ,000 in separate IRA at my bank. I am wanting to take a loan against my 401K in the amount of ,000 because the interest rate is lower, thus the payment is lower. Of course, ,000 is not all the I owe on credit card debt. With the savings I will receive from the lower interest rate, my plan is to take that money and apply it to my other credit cards, to get them paid off faster.

    The interest rate on my secured loan will be 5%, which will be added to my 401K, since it is my money. I’m not making 5% on my 401K right now anyway, so I see this as the best opportunity to get this done.

    What does everyone else think? I want to make the best decision.

    • ANSWER:
      The biggest question is: will you actually be able to repay that loan? If not, you will be hit with big penalties and taxes on it.

  23. QUESTION:
    Is taking a loan against your 401K okay or no?
    I am 23 years old and I wish the current law was in effect was I was 18 years old. I was stupid and got myself into horrible credit card debt. I live by myself and am trying desperately to get it paid off because my student loans are going to becoming due in a year.

    I currently have ,000 in my 401K plan at work and ,000 in separate IRA at my bank. I am wanting to take a loan against my 401K in the amount of ,000 because the interest rate is lower, thus the payment is lower. Of course, ,000 is not all the I owe on credit card debt. With the savings I will receive from the lower interest rate, my plan is to take that money and apply it to my other credit cards, to get them paid off faster.

    The interest rate on my secured loan will be 5%, which will be added to my 401K, since it is my money. I’m not making 5% on my 401K right now anyway, so I see this as the best opportunity to get this done.

    What does everyone else think? I want to make the best decision.

    • ANSWER:
      Typically it is a bad idea. Everyone says it is great because you are paying yourself back. The problem is, you will be pulling HALF of your balance out and that money wil not be growing.

      Since this is not a major purchase or an emergency, it seems really silly. You don’t borrow money to get out of debt. That is just moving your debt around.

      Cut back your expenses, work some overtime or a second job, and PAY OFF YOUR DEBTS. Start living on LESS than you earn. IF you must charge something, pay the bill IN FULL as soon as it arrives.

  24. QUESTION:
    Loan against 403b & 401k?
    I am beginning a divorce, I want to borrow against my 403b retirement account to hire a lawyer. I was told that without my spouses Signature on the loan papers I couldn’t have the loan. Later I discovered he took out of his 401k 00! How can that be? The reason my retirement company stated for not being allowed to take the money was that he was in titled to 1/2 of that money and they had to protect his interest. I understand this concept, but why doesn’t he have to get my Signature for the same reason?

    • ANSWER:
      I think you need legal advice on this one. Good luck and fight on!

  25. QUESTION:
    I’m facing a ,000 tax bill due the IRS because of a loan against my 401k, I’m on unemployment.?
    My job folded and I had an outstanding loan from my 401k and I know I can’t pay all the money due.

    • ANSWER:
      you are probably going to have to work out an installment agreement with IRS or somehow work out some arrangement for repayment, you might contact a tax advocate to see what is available to you

  26. QUESTION:
    Should we get a secured loan against his 401k?
    My husband wants to get a secured loan against his 401k to pay off some debt. Is that a good idea? We have about k in credit card debt and about k left on our house. Wouldn’t getting another loan to pay off other loans a bad idea? Let me know something y’all.

    Thanks in advance.
    I’m sorry, let me add more detail to this. My husband already took a cash withdrawal from his 401k and put that money into our savings so I guess what I’m trying to ask is if it would be a good idea to get secured loan against that amount of money. I just hate taking loans. I really think we can pay off our debt with our monthly income from our jobs.

    • ANSWER:
      Your 401 is your retirement….bad idea…period.
      I wouldnt do it.
      And you are penalized for doing so.
      Talk to your tax adviser or local banker before going ahead and doing this, just to be on the safe side.
      What about a home equity loan to pay off credit debt….do you have equity in your home?
      You are always gonna have a debt house,car,credit card, etc. why take from your tax free money to do that.
      I wouldnt suggest taking money from your 401k but if you do decide to Please dont take Yahoo Answers as your consultant Go do your research before your final decision. If you dont have a local banker or a a tax adviser just go to any or call any banker,tax adviser etc.

      Good Luck

  27. QUESTION:
    How should I hande this situaiton with an outstanding loan against my 401K?
    My company was recently acquired by another company. I currently have a loan against my 401k with a balance of ,500.00. I have a one time opportunity to allow this loan to be cancelled.

    This is the text of the information I received:

    “I understand that if I do not make the election to roll-over on this form, my account balance under the (OLD COMPANY), Inc. Savings Plan will not transfer to the (NEW COMPANY) Affiliates Employee Savings Plan. In that case, unless I make arrangements with the RRI Savings Plan to pay-off the loan(s) balance within 90 days of the acquisition’s closing; my loan(s) will default creating a taxable event. The unpaid loan balance(s) will be reported to the IRS as current income and will become subject to taxes and applicable tax penalties if I am under age 59 1/2. I also understand that I will not have a later opportunity to rollover any outstanding loan balance(s) and that loan balances may only be rolled-over with the full remainder of my RRI Savings Plan account.”

    I would like to take this opportunity to have this loan cleared because I have one child in college this year and my second child will start next year. Knowing that I will have 2 kids in college the next 3 years the 0.00 a month would be a HUGE help. My biggest concern is how it will impact my end of the year taxes next year. If I pay it off, I could have an extra 0.00 in taxes taken out each month to cover the bill at the end of the year. If it helps our annual family income (before taxes) is approximately 5,000.00. Any idea on how much the additional taxes would be on the ,500.00???

    Thanks for any help!

    • ANSWER:
      Just so I understand, what what this is saying is you can choose roll-over your 401(k) to the new company’s plan, loan and all and continue paying as you normally would.

      But if you choose not to roll over the 401(k), you will have to make arrangements with RRI to pay-off the loan, separately, somehow. If you don’t make these arrangements within 90 days, they are going to deduct the loan balance for your 401(k) balance to pay the loan. This effectively is an early withdrawal that is subject to penalties and taxes. You will not have as much to roll over into your own IRA account.

      If you choose option two, disbursing the 401(k), the provider will likely reduce the check by the any income tax they calculate that you will owe because of the early disbursement. You will not have to pay the taxes on the back-end. From this disbursement they will pay-off the loan balance. If there is anything remaining it will come to you.

      So when you pay your taxes next year you will receive a 401(k) disbursement form that shows the taxes you paid. You shouldn’t have to account for it through-out the year (this may not apply to the state portion)

      Assuming I have grasp on this, the real cost to you is the lost potential tax-free growth of your 401(k) fund. You are essentially eliminating the fund, so you have cash in hand. Most likely this is coming at a particulary bad time, as you will be realizing at least some losses over the last couple of years due to the market conditions.

      Cashing out your 401(k) is not advisable. A better scenario would be for your children to maximize potential student loan options. Doing so would be result in an overall better interest rate and tax situation and they will have plenty of time to repay these loans (and for you to help them if needed)

  28. QUESTION:
    I want to know if I should get a loan against my 401K to pay off a collection account?
    I don’t qualify to get a bank loan because of my debt to income ratio. The balance on the collection account is 00 but after being in collections for three months they made a offer to settle for 50% of the total amount. My company matches up to 50% of the amount I put into my 401k up to 14% which I’m able to currently contribute 10% of my pay. The loan would charge 4.5% interest but my retirement plan doesn’t allow me to make any contributions for six months if I make a withdrawal or take out a loan against my funds.
    Have plans of purchasing a home in the next three years and was thinking if a settled this debt now then I can qualify for a mortgage to purchase a home in the next three years.

    • ANSWER:

  29. QUESTION:
    Should I take a loan against my 401k to pay off high interest(>20%) credit card debt?

    • ANSWER:
      Loans against 401K’s are almost always bad ideas. Especially right now. When you take out a loan against a 401K they actually sell securities within your account to come up with the cash. In essence what you will be doing is selling stocks and stock mutual finds at their lows and slowly start paying them back at higher prices as the stock market starts to rebound. Sell low, buy high. This is a very bad idea. Better to tighten your belt, try to earn more money or lower your contribution to your 401K and use the extra money to pay down your 20% debt. Good luck.

  30. QUESTION:
    is it smart to borrow against your 401k to pay off credit card debt?
    I have 8,500 in credit card debt and about 15,000 or more in my 401k. I’d like to know if it would be a smart idea to take a loan against my 401k to pay off my credit card debt, that way there would only be one payment and it would be much lower. I’d also like to mention that i’m only 24 and won’t be retiring any time soon.

    • ANSWER:
      If your job is secure, and your credit card interest rates are higher than your average 401(k) earnings, this probably is a smart move. Interest on 401(k) loans usually is lower than most credit card interest.

      Also, the interest you pay on a loan against your 401(k) goes back into the 401(k), so you’re actually paying yourself while consolidating your credit card debt. And paying your cards off may even increase your credit score a bit.

      Be careful, though, not to fall into the trap of running up major new balances on those cards you’ve just paid off. Then you’d be in worse shape than you were before you took out the loan on your 401(k).

      Good luck!!

  31. QUESTION:
    Is taking out a loan against your 401k (or similar fund) a win-win (as long as you can pay it back)?

    • ANSWER:
      Taking money out of the 401k is a lose-lose situation. Borrowing money from your 401k is like using a credit card that charges 50%, it doesn’t make sense to do that.

      If you borrow money from the 401k, you will pay a penalty, taxes (fed and state) and interest when you pay the loan off. Plus in the future, when you do retire or start to withdraw when you turn 60, guess what, you’ll pay taxes on those withdraw. Double taxation, doesn’t sound good to me.

      I would only consider borrowing money from your 401k as a last resort, after you exhaust all resources.

  32. QUESTION:
    I filed my taxes and then recieved a 1099 for a small loan I took against my 401K.?
    When I received the loan, taxes were withheld, so I assumed it was taken care of. Now after I have filed and then received said 1099, what should I do?

    • ANSWER:

  33. QUESTION:
    I have a loan against my 401K but I am going through some financial woes and need advice?
    If I could stop my 401K distributions and increase my take home temporarily I would be able to catch up. 1st-Can I cancel my 401K anytime I want too? Would they take the amount I owe on the loan if I cancel? Can I restart the 401K anytime?
    I am 31 years old. I plan on continuing to contribute after a while but let say I have 32,000 and my loan is for 19,000. Can they go ahead and take the amount I owe and leave the rest alone?

    • ANSWER:
      I’m not certain I completely understand what you are saying. Do you mean you want to (temporarily) stop the contribution that goes to your 401k from each paycheck?

      If that is what you mean, yes, that can be done. Whether you can start/stop the contribution ANY TIME depends upon how your employers plan guidelines work.

      Some employers do allow you to make changes any time. Others allow this only on a quarterly or other period basis. This is a question that should be easily answered by your HR department.

      I assume you aren’t talking about taking the money out of the 401k, just stopping your current contribution for a period of time.

      If that is the case, they would not take the amount you owe for the loan just because you aren’t contributing any additional money into the plan. This is the reason many employers limit the amount of a loan you can take against your 401k to a certain percentage of what you already have in it.

      You should be able to start the 401k again once you want to…again, within the employers guidelines, whether that be on a monthly, quarterly or other schedule.

      Bear in mind, most loans on 401k’s do become fully due and payable if you leave employment with the employer. Failure to pay back the loan will make it become a taxable distribution, subject to taxes and penalties….ouch!

      Your HR department is your best place to get answers to your questions. Don’t forget to ask them for a summary plan description on your 401k, it is a guidebook for lack of a better term that explains your particular 401k policies and rules.

      I hope this helps.

      Additional info in regard to your additional info: It is doubtful that the employer would even be willing to do this, but if they did and they took a distribution to pay off the loan, it would cost you a lot more than the 19,000 you owe. This is because the 19,000 would become a taxable distribution. You would owe tax on it. (Tax is deferred on money put into a 401k, that’s the purpose of this set up). You would also owe a penalty for the early withdrawal.

      I don’t know your situation, but if you are in need of more money in your pocket, you might consider stopping your contribution for a time, or if that isn’t enough, perhaps the loan could be refinanced, through the 401k to bring it to a lower payment. For instance, if you took it out previously and it was 25,000 to be paid back over 5 years. Then say, you paid on it for 2 years so it is now 19,000. Then perhaps they would let you refi the 19,000 for another 5 years, making the payment lower.

      Finally, bear in mind, sometimes when a loan or distribution is taken, there is a period of time where you are not allowed to contribute anything to the 401k.

      I would advise against taking any sort of taxable distribution unless you have absolutely no other choice. It really eats into all you’ve been doing to try to save money for your retirement…which is so important these days.

      Good Luck…

  34. QUESTION:
    Should I refinance or take a loan against my 401k?
    Here’s the scoop. I bought a town home about 7 years ago for 50K. Excellent neighborhood, I just got really lucky no one outbid me. I’m screwing around about fixing things and my house is only half way done. I owe 47K on it with 23 more years. I owe 14.5k on a credit card with a 4.99 rate until it’s paid off. One of those promotion deals. I’m currently at 6.25 and am thinking of taking out 23k and refinancing to 15 or 20 years. at 5.125 or 5.375. Is this a smarter move than taking a lloan against my 401k @ 4.25%.

    • ANSWER:
      If you can refinance because you have enough equity in it, I would do that rather than taking out of your 401k. By the time you get hit with penalties and taxes on the 401k you are better off refinancing.

  35. QUESTION:
    Should I sell my house at a loss if it means I have to take out a loan against my 401k and deplete my savings ?
    Rent will NOT cover the mortgage on it. We’d be taking an 0 loss per month. We bought our townhome in 2005 for 370k. Our neighbor just sold his at a close price of 240. We currently owe 290k. The townhome is only 2 bedrooms on the upper level and is no longer sufficient for our needs- when we purchased in 2005 we had no children. In 2008 we had our first daughter and in Feb this year got a surprise set of twins so we had to move on. We just purchased a single family home, so now the question is whether to sell the TH at a loss or rent it. I know the conventional wisdom isnot to touch your 401k for this but I’m not sure whatwe gain by hanging on to it. I don’t see prices rising enough in the next few years to help us any. We thought about a short sale but right now we don’t have a hardship, although we might have to continually draw on our savings each month to make up the difference between rent and the mortgage, so we might end up exhausting our savings to hang on to the TH if we rent it anyway. We have about 35k in savings and about 40k available to us in a 401k in the form of a loan. I’d really appreciate answers from anyone with a financial planning background as to the best course of action. A loan on the 401k would be less out of pocket per month than the 0 to cover the rent.

    • ANSWER:
      well its a matter of mathematics at the point. at your 800.00 a month rate to cover the mortgage it will take you 60 months to burn through the savings. Do you foresee home prices returning even a little in the next 5 years i think so. I think i would pay the payments for another 18 to 24 months and see what happens with the home market and then put it up for sell regardless but i think the prices will come back 15 to 20k in that time and you will be at a “break even” point. But at any rate you don’t want to touch your 401k except to avoid a bankruptcy.

  36. QUESTION:
    Taking loan from previous employers 401k plan?
    I recently changed job, i had a 401k plan with my previous employer, that money is still there, i havent moved it to IRA account, Is it possible to take a loan against that 401k ??

    THanks
    Both my previous employer and new employer’s 401k provided is Fidelity, so do you think its possible ?

    • ANSWER:

  37. QUESTION:
    Most financial planners tell you NOT to borrow against your 401k plan. Why?
    I would think that if one were to need to borrow money, a loan against a 401k would be the best bet–what loan provides a better option than paying back principal and interest to one’s self?

    • ANSWER:
      When you put your money into the 401(k), you are doing it with pre-tax dollars.

      When you pay-back the loan, you are doing it with after tax dollars.

      So, you lose the tax benefit of the 401(k) associated with loan amount.

      Furthermore, when that money is loaned, it reduces your 401(k) balance by the loan amount, so the money is not available to grow (and compound) like it otherwise would.

      On top of that there is usually some fee that is paid to the loan administrator for servicing the loan. It is not usually a large fee, but it is still a consideration.

      Because a 401(k) plan is intended to grow for some future retirement income, ideally it would not be used as a source of current income.

  38. QUESTION:
    In the current financial crisis can I protect my 401k by taking a loan against it and saving it on a money mar?
    ket account ?

    • ANSWER:

  39. QUESTION:
    should i take a loan out against my 401k to pay off credit card bills?

    • ANSWER:
      usually not a good idea. But if you can repay without reducing current contribution level, not tap the credit cards again, AND increase your 401k contributions once the loan is paid off then it’s ok. But it has to be yes to all 3 things or you’re just damaging your retirement.

  40. QUESTION:
    need an IRA fund that will allow a loan against a 401k rollover, with payback to IRA.?

    • ANSWER:
      i think the current law only allows loans against 401k’s

      i hate to be the bearer of bad news, but i believe that if you rolled the money into a traditional ira, i am afraid that you may be out of luck.

  41. QUESTION:
    Questions, Loans against 401k?
    My fiance and I are having trouble coming up with all of the money needed for our wedding. We are paying for it completely on our own and we’re young so we’re not rolling it in. We can come up with the majority of the money because we are moving in with my parents in 2 months to save. We are short about 00 so my fiance wants to take out a loan against his 401k, or just borrow from it. Is there a big difference in the two? Which would be better for us to do? Any advice would be helpful.
    We have already scaled back as much as we can. We are getting our invitations, flowers, centerpieces and all favors and decorations for free. The place we’re having it at is free. The caterer was the cheapest I could find. The major costs are photographer, wedding bands & caterer. This would be kinda like our last option.
    I don’t understand why people get so upset by other peoples questions. Calm down. We are not going to live with my parents forever and some people were not born with rich parents so why should we give up having a nice wedding? Once again, we HAVE scaled down as much as we can!
    Doctor Deth, I am SURE their wedding cost more than 2000 dollars. People forget about EVERYTHING it takes to make a wedding happen; dress, tux, flowers, wedding bands, etc. It’s very hard to do it for less then 10k.

    • ANSWER:
      have a cheaper wedding
      taking a loan out for something like that is utterly stupid

      my niece got married in June – the reception was at the house my brother rented for the week (Outer Banks, NC) – he paid maybe 00 extra for having the wedding there – food was mostly cold buffet – cake was cupcakes – they got married on the beach 100+ guests had a very nice time – whole wedding probably cost 00 or less

  42. QUESTION:
    Can I still take out a loan out against my 401k even though I am unemployed?!!?
    Going through tough times – have not had a job offer for over 1 year. I need cash just to be able to keep the house that my family is living in I have been behind on almost everything my score went down from 740 to nothing. I cannot file bankruptcy yet because they will force me to liquidate the house as well as have my wife on it with me!!

    • ANSWER:
      No…only can take a distribution. You’ll have to take all of it as a 401k won’t allow a partial distribution like that. So, if you don’t need it all then rollover the rest into an IRA. You can tap that source if you need it.

      Keep in mind that taking such a distribution will only prolong the agony. Consider selling the house and moving into an apartment. That should be cheaper than the house and make it easier to get by.

  43. QUESTION:
    How is a 401k loan re-paid if I’ve left my company? And is it for the regular amount?
    I worked for a company for a certain number of years. During that time I took out a small loan. Since then I’ve left the company and there is still a balance on the loan. When I called the company, ING, they notified me I’d have to file the amount of this loan against my federal refund and pay the difference.

    Can anyone give me detailed information on how this works? Will there be penalties attached? Has anyone ever gone through it? And what is better – putting the loan against my taxes or simply paying the loan off in full. FYI- I’ve always received a refund on my federal taxes.

    • ANSWER:
      Most 410(k) loans are required to be repaid within 60 days of changing employers. The 410(k) plan at your old employer will specify if this applies to your loan.

      In any event, 401(k) loans that are not repaid when you change employers are treated as “Plan Distributions”. The balance remaining will be included as part of your taxable income for the year you changed employers.

      There is a penalty for taking a “Plan Distribution” if you are under age 59 1/2 at the time. The penalty is 10% of the amount, and has its own line on IRS Form 1040 (line #60).

      The amount of the distribution is also subtracted from the total amount you contributed throughout the year, and will reduce the dollar value of your retirement savings tax credit (line #51). This tax credit is based on your annual gross income (AGI) and could be as high as ,000 (based on income and filing status).

      If there is still time to repay the 401(k) loan (and you’re financially able to do so), you should figure your income taxes (federal and state/local) to decide whether you should repay the loan or just pay the additional taxes.

      FYI: The fact that you’ve always received a refund on your federal taxes only means that your withholding has been too high, and you’ve basically given the government a tax-free loan of your money.

      I went through something similar a few years ago when I was unemployed and had to cash out an IRA.

  44. QUESTION:
    Will I be able to borrow against my 401k to buy a new car with no penalties? How does repaying the loan work?

    • ANSWER:
      Yes you can. You’ll need to go to personel. You can borrow up to 50% of what you have vested.
      Depending on the size of the loan, you can take up to 5 years to repay the loan. There will be a loan fee charged. Only your personel person can tell you what your 401K program charges. And the last I heard, you can have a maximum of 2 loans, with a minimum loan value of ,000.00.
      Hope you like your new car!!! I did this when I bought my 2003 Mustang, love my ride.
      And no penalties, it is a loan and not a withdrawal.

  45. QUESTION:
    Ok, I have alot of CC , & a 401k with a recent loan against it for a car, can they take my car back?

    • ANSWER:
      no…if you don’t make the payments on the 401k loan they simply make the loan a distribution. You’ll then owe taxes and a 10% penalty.

  46. QUESTION:
    Borrowing against 401k?
    My husband and I took out a loan against our 401k about 4 years ago and it recently got paid off (I’m not sure when, but just a couple of months ago I think). However, we were hit with an unexpected need to raise a large sum of money, and after exhausting all of resources and still coming up slightly short we need to know if it would be possible to borrow against the 401k so soon after it being paid off or if there is some kind of stipulation saying that we cannot borrow for “X” amount of time. Does anybody know?

    Thankyou!

    • ANSWER:
      The only federal regulation is that there can be no more than k in total 401k loans open at any time. Thus, the feds put no time limit on re-borrowing the money.

      Your company may have different rules, so you’ll need to talk to the administrator of that 401k.
      Only they can give you the real “answer”.

  47. QUESTION:
    401k loan?
    If I take out a loan against my 401k will it affect my credit rating?
    I’m thinking of buying a home and wanted to consolidate some bills beforehand and was wondering if this would have any neg affects.

    • ANSWER:
      No, it won’t affect your credit rating, nor will your credit normally be considered before the loan is approved. There’s a couple of concerns however. Normally, if you borrow against your 401k, the amount of your 401k securing your loan will earn the interest you pay on the loan, but will not earn market returns. In other words, if you borrow K against your 401k, and the market goes up 20% next year, the k collateralized against your loan will not get the 20% return, it will get the 5% or whatever your loan rate is. The other concern, is that if you lose your job (or quit), normally the loan is considered payable in full immediately. If you cannot (or don’t) pay it off, the 401K will be liquidated to the extent necessary to payoff the loan, this will be considered a non-approved early withdraw from your 401K, and you’ll be responsible for the associated taxes plus and additional 10% penalty (if you’re not 59 1/2 years old). It might make sense for you if the following are true: 1) the loan is small relative to your 401k balance (minimal affect on return), 2) you could pay the loan off if you suddenly lost your job, and 3) the loan is for a relatively short period of time.

      Most financial advisors discourage borrowing against your 401k except in the most dramatic circumstances.

  48. QUESTION:
    401K loan to pay debt?
    Ok I know, some will say to borrow against a 401K is the worst thing you could ever do, but honestly..is it? Take a scenario where you have 8K in CC debt at 20% interest. You can take a loan against your 401K for 8K at 3%. If you really have no means to pay more than the minimum on your CC debt, why would it not make sense to take the 401K loan? I mean I understand the principles behind why 401K loans are ill advised. But really is it any worse than continuing to pay 20% on credit card debt?
    I realize there are downsides, but honestly if you had that scenario before you, would it not make sense to pay off the high interest debt and repay at such a very low interest rate?
    Current 401K loan rate given to me is 3%..very very low
    Really…you would rather pay the minimum pmt on an 8K cc bill at 20% interest than to knock it out with a 401k loan and repay at 3% over 48 months? That just makes no sense to me.

    • ANSWER:
      You are will end up paying tax twice on the money that you withdraw. When you invest in your 401k,you use pre-tax dollars. If you take out a loan,that money used to pay back the loan will come from money that has already been taxed. (through your paycheck) Then when you go to take the money out again later when you retire you will pay tax again on that money. The IRS loves when people take out loans from their 401- you are volunteering to pay taxes on your money twice.
      Also if you get laid off or take a new job, you will have to repay that loan within a few months. If you dont, you will owe 10% penalty as well as income tax on the money you withdrew. Although, some places let you have automatic withdrawal to pay it off. Not all.
      Another thing is if you run up your cards again, well, then you are really screwed.
      I know because this happened to me. I just got laid off from my job of 16 years with an outstanding balance which is to end in March. So I am one of the lucky ones, so to speak, as that I dont have years to go to pay it off.
      There are things to do to lower your APR on your CC’s. Call your creditors. Sometimes they will lower your interet if you have a good history with them. STOP adding to your debt!
      Tighten your belt-no more “wants”. Put as much extra money towards your bills as possible.
      You really can get out of debt if you want. It wont be easy or fun-but it can be done. Believe me, I went through the same thing. I strongly advise against dipping in your 401k. Especially in this economy.
      One more thing, the 3% loan rate is not that good, because you are paying yourself back you would want it a little higher. Mine was 5%.
      Good luck and make smart choices-you do not want to mess your your retirement.

  49. QUESTION:
    I took a 401k loan, and my payroll deductions never started. Now my loan has defaulted. What can I do?
    I took a loan against my 401k, and used the money to buy stock in an offering my company was giving. I got a 60% match on my stock purchase, so I wanted to maximize that match. I set up the loan to take the money out of my paycheck for 52 weeks. The problem is, they never deducted the money. After a few weeks I called my 401k provider and they said to wait longer and then contact my company HR. I contacted my company HR and they said to talk to the 401k company. Shortly thereafter I got a notice to pay the amount owed in full or it would default. I couldn’t pay off the amount and it defaulted, now I owe 40% on my taxes. Is there anyway I can make payments on a defaulted loan to reduce the tax impact?

    • ANSWER:
      Can you proved taht you contacted the 401k provider and their response? Can you prove that you contacted the HR dept and their repsonse? If either/both will admit to these contacts then there is a resolution. It’s called EPCRS. If a loan goes into default because no loan payments were taken through no fault of the participant (you) then you can go through this program which will allow a correction and no 1099-R and resuting taxation to take place. I would posit to the IRS/DOL (that’s who the program is run by) that the loan be reamortized and payments made over the next 52 weeks as it’s the original loan amount and the payment period would still be within the 5 year maximum loan payment window. There are other technical items to address in the EPCRS filing but your 401k provider can deal with that. The big thing you need to know is that there may be an answer for you but you’ll have to fight for it. EPCRS is not cheap…But if you contacted them and they still did nothing it’s certainly worth fighting for.

      Be aware that if you don’t go the EPCRS route, you can still pay on this loan amount …you will have an after tax account that when you receive a distribution from the plan will not be taxable. A headache for the recordkeeper and for you since you’ll have to make sure they, and all other recordkeepers after them, keep it seperate from your pre-tax money, But you’ll still be able to continue the compounding effect of your accounts. But I’d push on the EPCRS and push HARD!!!!

  50. QUESTION:
    401K Loan to pay off….?
    I am 29 years old and have about ,000 in my 401K. My problem is I have a credit card with a balance of ,153 and Chase just jacked up my rate. I called and bitched but they said they had to raise them because of this whole financial crisis and all credit card companies are doing it? So my question is…..is it smart to take a loan against my 401k to pay it off. My job is secure and it seems like a smart thing to do…why pay 14.99% interest to Chase when I can pay 4.25% to myself.
    Pros/cons?
    What would you do?

    • ANSWER:
      The 401K is a good option, generally there is a 70% of cash value limit though it does vary. I’ve never heard of a limit lower then 40% so you would be able to borrow enough to pay off the credit card. The only downside is that you need to payback the new loan — even if you change employers/401Ks. Incidentally, the 4.25% isn’t paid to “yourself” the company that manages your 401K get that. So it’s not as if when you pay off the loan your 401K received the amount paid back and an additional 4.25% Still you’re saving 10% per year in the life of the loan over what you’d be paying Chase.

      Another option you may wish to consider is usually in these situations, where a company changes it’s terms, you have the option to opt out by simply not using the line of credit any longer and continuing to pay it off. This is usually in the letter announcing the new terms and is typically in very fine print at the bottom. You could ask Chase about that, but realize you may have trouble getting new credit. Not because of opting out, but simply because in this economy even people with excellent credit are having difficulties.

      Hope this helps.