Helping a unique generation achieve financial independence. By Jeremy Vohwinkle Comments. This is good news for participants who find themselves in a bind and need quick access to some cash, but it also potentially puts a lot of retirement nest eggs at risk. This number picked up a bit during the economic downturn as people found themselves in difficult situations and in need of a little extra money.

So, having the ability to tap into your k a little early may be your saving grace. While each plan may set their own specific loan features and restrictions there are a number of similarities. Even so, if you are considering a loan, be sure to check with your plan provider to see what the requirements are for you. Racking up credit card bills, getting your vehicle repossessed, home foreclosed upon, or resorting to payday loans are very bad alternatives.

So, there are some situations in which a k loan has an advantage. With many plans it can be as easy as logging into your account online and clicking a few buttons to have a loan issued.

It can then be sent in a few days via check or possibly even deposited directly into your checking account. Try getting a loan at the bank without filling out a mountain of paperwork or running a credit check. When you borrow money from a bank or charge something on a credit card you need to repay the loan plus interest. In these cases you pay the bank the interest. With a k loan you pay yourself the interest. Keep in mind that some of that money was paid back in with after-tax money, but the net result is far better than giving those finance charges to a bank or credit card company.

Some loans do not give you a choice and they will simply take an equal portion out of each investment to cover the loan proceeds. If you can choose where to pull the money from the loan there is a strategy you can use that may minimize the negative impact on your investments.

If at all possible, you should consider pulling your loan from the fixed income portion of your portfolio. This is especially true in a low rate environment where your fixed income allocation may be earning just a few percent each year.

The thing about this strategy is that you know exactly what your opportunity cost is if you pull money out of a fixed account. If your fixed account is earning 2.

Compare that to borrowing from the stock portion of your portfolio.

Can I Borrow From My (k) to Buy a Car? | The Finance Base

Here, the opportunity cost cannot be determined until after the fact. A calculated risk is better than rolling the dice. While it was already mentioned earlier, it is worth discussing the dangers of defaulting on your loan one more time.

But what happens if you quit your job or get fired? In most cases, that means you only have 60 days to pay the outstanding balance of your loan before you default. When you default, your employer then reports to the IRS that you were unable to pay the loan, and they will then treat the defaulted amount as a hardship distribution.

If you were in a difficult financial position to begin with that required you to take the loan do you really think coming up with that cash is going to be possible? As you can see, defaulting on your k loan may have far-reaching effects. And some things are completely out of your control such as losing your job after taking out the loan. So, before taking that loan there are a few things you may consider first.

Above all else, you need to create an emergency fund.

It might not be a lot, but after you have a few hundred saved up it is going to help provide you with a little safety net that can keep you from having to resort to high-interest credit cards or taking a k loan for just a small and temporary emergency. You should also consider opening a Roth IRA at a discount broker like TradeKing. Not only is this a good idea for generating tax-free income in retirement, but these accounts also provide you a little more flexibility and let you take control of your money.

One major benefit of the Roth IRA is that you are allowed to take your contributions out at any time without being taxed or paying a penalty. It still has the drawback of opportunity cost, but you have the option to take the money out of an IRA as you need it.

No loan fees, no interest to repay, and you can work with your tax preparer or CPA to minimize the tax burden. My ex has bad credit. His car died the other day. He is working but just started at the current job. He still has a k from his old job just sitting there. I think he should take a loan from it to purchase a vehicle rat her tHan go to obe of those high interest car sales places.

Is it possible to tak a loan out on an old k.? I defaulted on k loan inhad baby missed a payment, they caught it inI had been paying on the loan every check up until then.

I don't know a thing about k. I have over shares of stock, the company keeps going up. I left my job, and as a result, my k is no longer active. I haven't rolled it over yet. Is it still possible to take out a loan against it even though I am no longer employed with the company where it originated?

It is for an emergency house expense. If I have made a loan from my k and haven't finished paying for it. Could I still barrow from my k again under different circumstances. I currently have 3 k loans loan 1 Could I still barrow from my k again under different circumstances? My husband is thinking of changing jobs in December. We have an outstanding k loan. My question is if he does leave his present job and we cannot pay the loan balance within 60 days, will we have to pay the taxes and penalties on the distribution for the tax year or the tax year?

Thank you for the informative article and replies to other comments, it is appreciated. I resently found out my wife is pregnant, and ontop of that we are having car issues. I have a k plan from old employer. For a vested amount of 16, assuming your k company also has a loan program you would be eligible for a loan up to 8, After processing fees you could expect to get about 7, in about 2 weeks if you selected the maximum possible.

You would then have to pay back the loan out of your post tax dollars from your paycheck for whatever term and percent your retirement company can offer. The other option is to take an early withdrawal assuming you're below the retirement distribution age. You could take any withdrawal amount up to your vested amount.

With the early withdrawal you also get additional tax forms to receive. I think the retirement company sends you a of some sort, and you would basically treat that like an additional W2 form.

It would show the total as income, stock broker license check would show the tax and penalties paid as borrow from 401k to buy stocks.

A big difference between the two is that the loan could usually hurt your cakephp input type date selected a little bit, the early distribution hurts your retirement fund a TON.

Financial adviser is a great idea for major life changes and unplanned expenses. I don't think a consultation like this would actually cost much at all. I see in the answers that they took the balance of the loan before paying the rest in a distribution. This is confusing to me since they already took the balance of the loan out of the K balance when they gave the loan It was my money I borrowed from and it was already deducted.

Did they mean that they took the taxes and penalties for the default out of the k balance before repaying? Is it possible for me to continue this loan because I am back at my old job.

The other minimum requirements should actually create a minimum time frame artificially. The loan amount is no greater than 50, of the vested amount. They usually have a minimum loan of to 1, as well. Borrow from 401k to buy stocks means that if you only have 1, vested, if your minimum loan is 1, that means you cannot take out a loan. If you area just starting out and making monthly payments it may take some time 6 months, a year?

Employer matching and distributions are not typically vested for at least a couple of years either. This is exactly what I needed to know. I came here from LWML and saw this topic and jumped on it! This was very informative. This is what I have been searching in many websites and I finally found it here.

I am so impressed. Could never think of such a thing is possible with it I think you have a great knowledge especially while dealings with such subjects.

I have a k from a previous employer I now work with a different company. I have stock exchange trading south africa question. I was employed with a company over 30yrs. Was laid-off in January I never received a separation from service distribution form until apr 1.

I also received a report from retirement plan early July of what i had in my account in the retirement plan. I saw that a deduction for the amount of the loan was deducted. What i dont understand is shouldnt I have recieved the separation from service distribution form right away after being laid off. So, am I paying more in taxes since it was done this way? I took out a loan on my state employee retirement plan a few years back and have another 3 years of payments.

However, I am now in a position where I could pay back the lump amount still owing. And if I take a loan and lose my job before it is paid in full, how are they going to get there money Before you decide to take a loan from your retirement account, you should consult with a financial planner, who will help you decide if this is the best option or if you would be better off obtaining a loan from a financial institution short termism and stock markets other sources.

The benefit of taking a loan is that the interest you repay on a qualified plan loan is repaid to your own qualified plan account instead of to a financial institution. However, make sure you compare the interest rate on the qualified plan loan to a loan from a financial institution. I live in Canada so do we have this option to borrow from our retirement fund and if so how do we go about it.

I am on disability now and have exhausted all monies given from ei and now just trying to line on work insurance. There is too many things to pay for. Thank you for your help. I want to pay off my credit card which has gotten out banker 11 light index binary options sys hand.

I can take a loan from my K to pay it off. I hope that made sense. Because the money you are getting from the loan, you can use it as if it were after-tax anyway, so there is no difference that you are paying back after-tax money. My company was sold Jan of The new owner did not take over the k and so we were told to move the money from the current provider. Nifty day trading strategies rolled some money into a ira at my bank.

I had a loan and the provider said it must be paid and they would only send the check minus the loan balance they were paying off the loan I wanted to continue my payments and they said I could not.

Now I find out the pay off of the loan amount was taxable I cant believe this! Can you explain or is this a mistake. I am 78 years old. Some folks tell me I can replace all three and others have told me I could only replace one. Since I am not enrolled in k with new job can I stillbarrow money and pay them back over 5 years.

How long does it normally take to receive the funds once a k loan is requested? My loan is in a committed status. What does that mean? If a person is in retirement and has met their minimum distribution, can they take for instance: A distribution Loan of 5k the first of Nov.

I believe it is called a "Direct Rollover". Just finish paying off the loan early the monthso I requested for another loan again, they stock market appreciation history no because I old deen loan back in the time I got lay off.

If that the case why I got loan last year. I'm paying distribution weekly out of my payroll. I got laid off from a Fortune company two years ago. I'm nearing the stage of exhausting all my savings amazing I've lasted this long! I understand a loan from a K can become due within days after losing your job, but do K administrators allow someone who has been laid-off to take a loan from their plan?

I thought so, until doing web research and can not find anything. I'm hesitant to call my Plan Administrator Vanguard to find out. Any idea if I can take a loan from my K if I'm jobless? I also wanted to ask about debt consolidation loans or companies that claim they can consolidate your crdt cards and save you money is it true they hurt your credit and is it worse or same as bankruptcy.

My husband and I are thinking of taking a loan out from his work. His boss doesnt agree with this so is not really working with us to get it done.

Invest In My k Or Save For A House Downpayment? | Financial Samurai

Is there a work around? We have a ton of cc debt and behind in a mortgage. Do you know if you can make double paymnts or extra paymnts on the loan? We really cant think of another way of paying off this huge debt the interest is just incredible. If I roll my K balance into a new K I am thinking of starting for my sole proprietorship Company, then can I borrow from the rollover K balance? Leave it to the government to take a bad situation, such as being out of work and desperate for money, and turn it into a great opportunity to gouge you come tax time.

Is this what Rahm Emanuel meant about never letting a good crisis go to waste? Why don't we ask the obvious question-- where the hell does the US government get the right to decide how you save, borrow, or spend your retirement money?

Is it even yours at all? Do you really want your retirement micromanaged by the same folks who created a multi-trillion dollar debt which will never, ever be repaid? Job security is not in the back of my mind. That's one reason I am reconsidering using my IRA- less out of the k would mean less due if I do get laid off.

Unfortunately I haven't had the IRA for 5 years so I will need to find out what the penalty would be if I go that route- something that I had not considered.

Thanks for pointing that oversight out to me. Since I got a very late start saving for retirement I am extremely intent on ensuring that I do not foolishly squander what I have. Thanks again for giving me more info on which to base my decision. This is a very useful site to have found!

I have a question based on the info in this article. My reasoning is that if push comes to shove, the IRA would be more accessable with less penatiy than having to go back into my k. Hi Jeremy, Very interesting article! What happened with the loan when the company change the k program provider? Is the loan term transferable? In my case, according to my HR office, a loan would also prohibit me from participating in my K for 6 months which means no matching contributions. This would end up costing me a few hundred more dollars per month.

Scratch that idea for me anyways. I was married to my husband only months then he suddenly died, yes I am the beneficiary on his K. My question is how long do I have to wait before I can receive the benefit or can I just get one lump sum. The background for my situation is extensive and aggravating and not really pertinent. But, the statement that repayments have to be spread out over the life of the loan concerns me.

No doubt a k loan should be the last option. Thanks for giving it the attention it deserves. Too many people have no idea what they are doing when they tap into their retirement. I think the rate is attractive and allows us to better cash flow. As Hank pointed out the Opportunity Cost on the money borrowed is cause for pause but I think the largest thing for me would be the Opportunity Cost of having the flexibility to leave my current employer.

It severely limits my ability to take a plumb job should one arise. My fiance is 64 and is receiving his social security retirement benefits. He withdrew most of his k last year. Do the proceeds from a k count as income towards social security? I couldnt remember if we got something like a to declare the 8k as income the year we got the proceeds. If we did that year, and we do that again for the remaining balance, wouldn't we doing that twice?

And do we pay the penalty on the taxes or taxes?

One other thing to be aware of with k loans is what happens if you transfer your job outside the US. I'm looking at the prospect of a move to Hong Kong. The impact is basically the same as if I left the firm because I would be considered a local hire in the new locale. Do you want to be a millionaire? Would you like to see how I became a millionaire before I turned 30?

Hello and welcome to Gen X Finance. My name is KC. Between saving and investing I was able to accumulate a net worth of over a million dollars before I turned My Story I graduated from college early in with a bachelors in … Read More Social Security — What You Need to Know About Benefits, Coverage, and Eligibility Social Security Benefits and You Social Security is a sore topic for many people.

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Are k Plans Too Risky For Retirement? What You Should Know What is a b Plan? Maximum k Contribution for Has Been Announced. It is really very useful and creative blog about k plan loans rules.

Jeremy, I got laid off from a Fortune company two years ago. Thanks for the quick response, Jeremy! Thought I'd share that perspective. About Me Do you want to be a millionaire? Most Popular How to Become a Millionaire How to Deal with Car Salesmen Mistakes You Can't Afford to Make When Buying a Car Windfall Elimination Provision Kids Eat Free How To Save Money Fast Award Winning Chili Recipe Pulled Pork Crock Pot FDIC Insurance Limit Stock Market Crash Catastrophic Health Insurance.

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