If a 401(k) plan allows loans, employees can borrow at least $10,000 and a maximum of the lesser of 50 percent of the vested account balance or $50,000 as of 2015, reports the IRS. The account holder must pay back the loan within 5 years unless an exception applies.Continue Reading
Because in 401(k) loans employees are essentially borrowing from themselves, there are no credit checks and low application fees, according to About.com. Although the borrower must pay interest, the interest goes back into the 401(k) account. Borrowers must make loan payments at least quarterly in substantially equal periodic payments, states the IRS. Employees purchasing a principle residence are normally allowed more than five years to pay back the loan. Employees in military service can suspend loan payments.
One difficulty with 401(k) loans is that when an employee leaves the company with the plan, the loan must be repaid immediately, as reported by USA Today. If the loan is not repaid, it becomes a distribution subject to a 10 percent penalty tax. Additionally, because loan repayments come from after tax dollars, account holders pay income tax twice, once when repaying the loan and again when the funds are accessed upon retirement. Borrowers from 401(k) accounts also lose out on potential investment growth until the funds are repaid, points out About.com.Learn more about Financial Planning
401(k) retirement funds are accounts for employees working in the private sector that allow them to store money either through a tax-deferred plan or through investments using pre-taxed income; 401(k) plans come in several varieties but have common restrictions such as one that employees cannot withdraw account funds before reaching the age of 59 and six months. In addition, 401(k) plans give employees personal discretion in deciding how much money to contribute and where to invest finances, notes WSJ.com. Companies offering a 401(k) plan put in a financial contribution along with a percentage of an employee's salary to help the account grow.Full Answer >
A 401k loan is a loan that allows a person to borrow up to 50 percent of his 401k account balance up to $50,000. In most cases, the loan must be repaid within five years, but an extension may be possible if the money serves as a down payment on a home.Full Answer >
Providers can offer loans against a 403(b) retirement plan but are not required to, according to the IRS. Participants should contact their plan sponsor or refer to the Summary Plan Description to determine loan options.Full Answer >
Differences between a 401(k) retirement plan and an individual retirement account include eligibility for participation, maximum contributions allowed and investment options, according to Investopedia. Differences in eligibility and tax treatment also exist between the two types of IRA accounts, traditional and Roth, notes U.S. News & World Report.Full Answer >