A 401(k) loan can be a useful option for some situations.

• When done for the right reasons, taking a 401(k) loan and paying it back on a schedule can make sense.
• Reasons to borrow from your 401(k) include speed and convenience, repayment flexibility (repaid directly through payroll deductions!), and cost advantages (typically lower interest than other short term loans).
• Some things to consider before taking out a loan: a loan could have a negative impact on your investment performance, a loan could introduce some tax inefficiency, and leaving a job with an unpaid loan will have undesirable consequences (like immediate re-payment requirements).
• A weak stock market may be one of the best times to take a 401(k) loan.

Basics:

• Technically, a 401(k) loan is not a true loan because it does not involve a transitional lender or an evaluation of your credit history.
• Rather, a taking a loan against your 401(k) is the ability to access a portion of your own retirement plan money.
• Our plan allows you to take up to $50,000 or 50% of assets, whichever is less on a tax-free basis.
• You are required to repay the money in order to restore your plan to approximately its original state (this is done through payroll deductions).

Note: On March 27, President Trump signed a $2 trillion coronavirus emergency relief package. It doubles the amount of 401(k) money available as a loan to $100,000 but the distribution has to be linked to the coronavirus, such as a diagnosis or a layoff.

Terms

• A typical repayment term is 24 months but can be up to 5 years. Repayment is done through automatic deductions in payroll.
• An annual interest rate of the prime rate +1% will be applied. Please keep in mind that the interest applied to the balance is repaid by the participant into the participants own 401(k) account, so technically this is a transfer from one of your pockets to another.

Leaving Work with an Unpaid Loan