Basic Information About 401k Loans

Answer 1

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Answer 2

Many men and women have found out that they have the ability to borrow money from their 401k plan before they actually retire. Although 401k loans make it easy for you to obtain the money that you might need, it might be a good idea for you to remember that borrowing money from your 401k plan also means that you will have to pay back this money with additional interest. The terms of your 401k loan will be based on your individual 401k plan and your retirement plan provider. If you want to learn more about how your 401k loan will work, you will need to contact your 401k plan administrator. He or she will be able to help you more about the 401k loans that might be available to you.

401k Loans Have Limits

There are quite a few different 401k plans that do not allow members to take out a 401k loan. Even though the government does allow 401k loans to take place, retirement plan providers are not required to let everyone obtain a loan from their 401k plan.

Most 401k plans have limits to how much you will be able to borrow. For example, many different 401k loans only let you borrow half of the funds that are in your 401k plan. However, if half of the money in your plan is more than $50,000, you will only be able to borrow no more than $50,000. In addition, if you have borrowed money from your plan before, the amount of money that you borrowed will be factored in to your 401k loan limit.

Paying Back the 401k Loan

Most 401k loans have very strict payback terms. While other loans are lenient about when you need to pay back the loan, most plans have a maximum payback period of five years. Although 401k loan plans require you to pay interest, this money does not become taxed. In addition, the money that you pay in interest will eventually come back to you. You will be able to get the money back once you retire and are able to draw from your 401k plan.