Allowing loans within a 401k plan is allowed by law, but an employer is not required to do so. Many small business just can't afford the high cost of adding this ...
Taking out a 401(k) loan is like cutting off your own limb. Most advisers would call it an act of fiscal insanity, unless you're genuinely trapped with no other ...
401(k) loans have been demonized, but they're often the most beneficial source of cash. ... Clearly, these loans have a following and, in fact, they can be appropriate in some situations. Let's take a .... TAGS: 401K Retirement Saving Plan. Ads ...
Sep 2, 2008 ... When you must find cash for a serious short-term liquidity need, a loan from your 401(k) plan probably is one of the first places you should look.
It is a Loan, Not Free Money. One of the most common mistakes people make is thinking that borrowing from their 401k is the same as going to the bank and ...
Reach active buyers and immediately increase your visibilityGet Started
Among work retirement plans that do offer loans, there are typically two loan .... A 401k Retirement Plan Loan- Know the Facts Before Signing the Dotted Line
The 401k Loan May Have Benefits, but it Isn't Without Pitfalls. A 401k loan can be helpful when you are facing a financial crisis, but you may be putting your.
Nov 28, 2012 ... Recently, I paid off my largest school loan ($16,000) with a 401(k) loan. I don't .... So I actually agree with the OP that 401k loans, when used ...
Aug 18, 2014 ... Loans are not permitted from IRAs or from IRA-based plans such as SEPs, SARSEPs and SIMPLE IRA plans. Loans are only possible from ...
May 6, 2014 ... By other distributions or nontaxable (at the time of the loan) loans from plans maintained by the employer or by any other employer, or by ...
Jul 12, 2013 ... Workers who take 401(k) loans are often less prepared for retirement.
A 401(k) plan permits participants to take loans. The plan sets forth the loan limits of Code §72(p)(2) so that a loan to a plan participant will not be treated as a ...
Thinking about starting your own business, but don’t have the capital to get started? If you’ve been a diligent employee to other companies for years and would like to get started as your own boss, you’ll need a cash infusion – and the best kind of cash is yours. After all, the money in the 401(k) account is yours, and it may be just the kind of rainy day fund you need to get started with your dream. Let’s consider how they work and what you should watch out for if you’re considering getting a 401(k) loan.
How They Work
Some employers have stricter rules than others about how and at what cost they’ll allow you to arrange for a 401(k) loan. You’ll want to discuss the ins and outs with your company account or manager if at all possible – and make sure you get the relevant details of your plan.
Basically, a loan is arranged with your company based on the principal accrued in your 401(k) balance at an interest rate that’s determined by your employer’s benefits package. However, the terms of their plan must be in accordance with section 72(p) of the Internal Revenue Code. Among other stipulations, the code requires that the loan be over a period of no more than five years (unless it’s a loan to buy a home), that the interest rate be reasonable, and that the employee make regular equalized payments.
The interest rates and repayment schedule are usually tied in to your 401(k) account balance directly, with all loans, payments, and penalties affecting the tax-exempt income.
Acquiring a loan based on money you theoretically already have is a much sounder financial decision than many others employed to garner start-up capital. Ultimately, you can’t do much worse than lose the money you already have. If you’re in the frame of mind to start a business and are looking for a cash infusion, a loan like this may seem like a tidy way of advancing your venture.
Some employers do what they can to exploit the rules of the tax code, for example by declaring the loan in default if a single payment isn’t made on time. At that point the employer can maneuver to impose the tax penalties associated to a withdrawal. Make sure you’re familiar with the terms of repayment, and comfortable with what they’ll impose on your financial life.
Although it’s money that’s fundamentally yours, a 401(k) really is designed to serve as an ever-growing nest egg for your retirement. If you have to deal with illness or other crises down the line, it’s something you know you can depend on. The decision to get a loan based on that principal has to be weighed against the advantages you’ll enjoy down the line.
Borrowing your own money isn’t the worst way to start a business – but it’s not ideal. You’re costing yourself a lot of security, and accruing debt that may eventually dwindle your rainy day fund down to nothing. When considering a choice like this, make sure you know what you’re risking, and make sure you believe it to be worth it.
Receive tips, tools, and case studies with the Business.com Advisor, our weekly email newsletter
Thanks! We just sent your first issue
Briefly describe your project and get matched with the top vendors!