Articles on Stock markets

News, Research and Analysis

Help Center
Introduction
Investment Portfolios
Investment Terminology and Instruments
Technical Analysis and Trading
Cryptocurrencies and Blockchain
Retirement
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal Finance
Corporate Basics
Can I Take Loans Against My 401(k)?

Can I Take Loans Against My 401(k)?

401(k) plans typically allow loans to be taken, so that investors don’t have to pay taxes or an early-withdrawal penalty on the money.

Many 401(k) plans allow loans to be taken out on the account balance, up to certain limits, and on a strict repayment schedule. Most plans require loans to be repaid in under two years, but they can give participants up to 5 years to repay a loan.

Taking money out as a loan allows participants to avoid early withdrawal penalties and taxes. If the loan is not repaid on-time, it can be treated as a distribution, however, which might cause the investor to incur taxes. Investors usually don’t fully realize the damage that loans (and early withdrawals) can do to the long-term account balance.

Due to the power of compounding interest, which is especially powerful in a tax-deferred vehicle like a 401(k), the decreased amount of money “at work”, and the opportunity cost of would-be contributions that were directed to loan repayment instead, can severely affect the ending balance of a retirement account when the participant is finally at retirement age.

Investors should perform a simple cost/benefit analysis to decide if it is really worth it to take money from a 401(k) instead of another source.

Keywords: retirement accounts, withdrawals, early distributions, 10% IRS penalty,
What is a covered call?What is a support line?What are Accelerated Benefits?What is a Currency Transaction Report (CTR)?How Will Ethereum Scale?