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What is a 401k loan?

David McAtee Posted

What is a 401k loan?

Kathryn Perez

I’ve done this before.  You submit a formal request (there is usually a form your company uses) and you have to have a definite need for the money.  You cannot just get the loan to buy a motorboat or something.

When you are approved for the 401K loan you are expected to pay it back.  If you do not pay back the loan then it will be taxed as income at a 25% rate.  Money that is in a 401K is yours but it is there for retirement and not early withdrawl.

One can receive their full vested 401K by changing jobs.  Again, this money becomes income and you will be taxed on it.  They take some taxes out when you receive the funds from the bank holding your 401K but when I received my funds they took out 20% but the Federal government wanted 25% so i was caught with a huge tax bill at the end of the year.

Again, 401K loans are for those with a dire need, like losing your home or unexpected medical bills.  Most banks will not approve frivolous requests for the money.

tom smith

Technically, 401(k) loans are not true loans, because they do not involve either a lender or an evaluation of your credit. They are more accurately described as the ability to access a portion (usually the lesser of 50% or $50,000) of your own retirement plan money on a tax-free basis. You then must repay the money you have accessed under rules designed to restore your 401(k) plan to approximately its original state, as if the transaction had not occurred. 

Webb Rowan

Your 401K is a retirement tool that’s akin to a pension. Basically you put money into it and when you retire, the money that you’ve put in will be disbursed to you like an income. It can be tax-deferred and a lot of people buy into it in conjunction with their employment plans to put some money aside for when they stop work in the future.

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