Merrill Lynch's 401(k) savings and investment plan allows participants a maximum of two outstanding loans at any given time, notes the U.S. Securities and Exchange Commission, or the SEC. Principal residence loans have terms ranging from one to 15 years, while general purpose loans have terms that do not extend beyond five years. These loans have a fixed interest rate. In general, active members of Merrill Lynch's 401(k) savings and investment plan are eligible for these loans.
Merrill Lynch does not allow plan members to borrow amounts exceeding 50 percent of their account balance, less any outstanding loan balance, or amounts over $50,000, minus the highest outstanding loan balance over the past 12 months, explains the SEC. To compute loan interest rates, the firm uses the prime rate published on the Wall Street Journal on the last business day of the month preceding the month in which a borrower obtains a loan.
A significant number of retirement plans offer 401(k) loans, explains Merrill Lynch. Home buyers can leverage these loans to increase the size of their down payments, which may qualify them for lower interest rates and eliminate the need for expensive mortgage insurance. Borrowers can also use these loans to deal with contingencies.
However, borrowing from retirement plans is not always advisable, warns Merrill Lynch. If borrowers default, fail to repay loans before leaving their employers or miss payments, tax agencies view the loans as distributions and require affected parties to pay income tax. In addition, if the borrowers' ages are under the statutory retirement age, the IRS levies extra charges.