Know Your Options: Borrowing From Your 401k Plan

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Unfortunately, there may be a time when you feel as though you have no other recourse but to tap into your retirement fund. Unforeseen circumstances like the death of a spouse or family member, large medical bills, and similar situations can leave you, and your bank account, feeling drained. In these situations, it might be possible to borrow from your 401k without incurring penalties, but before you decide, keep in mind the following.
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About Marty Becker

Marty Becker is the President and Owner of Atlas Financial Strategies. He has helped many clients grow their wealth and increase their retirement incomes without the risk of stocks, real estate, or other risky investments.Marty specializes in helping his clients take control of their finances and reach their goals without taking unnecessary risks. Being the owner of Atlas Financial Strategies, and an independent producer, he has contracts with multiple companies, unlike the average financial planner. That means he can shop every company in the United States and Canada to find the highest return the industry has to offer you, with absolutely no risk of loss. His custom and confidential solutions are designed for each individual client.

Borrowing from your 401(k) can be dangerous, make sure you know the rules!

When Should You Borrow from your 401(k)?

The short answer: never, if you can help it.

Unfortunately, there may be a time when you feel as though you have no other recourse but to tap into your retirement fund. Unforeseen circumstances like the death of a spouse or family member, large medical bills, and similar situations can leave you, and your bank account, feeling drained. In these situations, it might be possible to borrow from your 401(k) without incurring penalties, but before you decide, keep in mind the following

 

 

When You Borrow from your 401(k)?

  • Repayment of the loan will be taken directly out of your paycheck-just as if it were a wage garnishment, meaning that you will have no control over your repayment.
  • You can borrow up to 50% of your total 401(k) retirement savings, not exceeding $50,000.
  • The interest rate on your 401(k) loan will be the Prime Market Rate plus an additional 1%.
  • Repayments annuitize, unless you are taking out a 401k loan for mortgage-related reasons. In this case, the repayment period will most likely be longer.
  • The minimum loan amount is $1,000.
  • You are allowed to take out multiple loans
  • There is very little paperwork required to apply for a 401(k) loan
  • There are no limitations on reasons for borrowing, but keep in mind that only specific reasons may qualify for the penalty-free borrowing option
  • The prime rate on your loan will most likely be higher than the interest that you received on your 401(k) account.
  • Default requires a 10% penalty fee unless you are aged sixty and older, plus federal and state income taxes.
  • If you lose your job for any reason, your 401(k) payment is automatically due. Failure to pay in full after the specified date will result in a defaulted loan status. This means that you will be charged a 10% penalty fee, and required to pay state and federal income taxes.
  • There is usually a fee that you will be required to pay before you can accept your loan. These fees typically range from $10-$100 but make sure to read the fine print carefully before signing.

Your 401(k): Your Future

Your 401(k) is designed to be your retirement savings account and provide you with added financial security in your golden years. For that reason, most financial planners, tax advisors, and others will advise you against borrowing from your 401(k) unless circumstances become dire.

Be sure that you are well informed about all of the risks and benefits of such an action before you sign on the dotted line.

About Marty Becker

Marty Becker is the President and Owner of Atlas Financial Strategies. He has helped many clients grow their wealth and increase their retirement incomes without the risk of stocks, real estate, or other risky investments.Marty specializes in helping his clients take control of their finances and reach their goals without taking unnecessary risks. Being the owner of Atlas Financial Strategies, and an independent producer, he has contracts with multiple companies, unlike the average financial planner. That means he can shop every company in the United States and Canada to find the highest return the industry has to offer you, with absolutely no risk of loss. His custom and confidential solutions are designed for each individual client.

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Annuities are a safe and reliable investment. They can transform your savings into a more predictable income. Speak with one of our qualified financial professionals today to find out how an annuity can offer you guaranteed monthly income for life.

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Content in our posted articles is deemed to be accurate but topics, facts and laws can change. It is always a good idea to verify facts before making decisions. Always seek authorized and professional advice regarding financial decisions which includes investing, annuity purchases, tax planning, changes in a financial portfolio and retirement planning.

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