When you are in need of cash and have no other option to get the required amount, 401(k) and 403(b) plan loans can be the most favorable alternatives.
While contributing to your 401(k) or 403(b) Retirement Plan, you can borrow up to 50% of their deposited account balance or $50,000, whichever is less. But if you have already taken a 401k loan within the past 1 year, then you will be offered an amount obtained by deducting the outstanding loan balance from what you could have otherwise received as loan.
In case you are severe financial distress and you require cash from your 401(k) plan or 403b account, it is better to borrow from the account rather than go for a hardship withdrawal. This is because any such withdrawal from the Plan accounts before the age of 59 and 1/2 years of age requires you to pay a 10% penalty.
Payments against 401(k) or 403(b) loans:
Taking a loan from the retirement account will require you to pay interest at the prime rate plus an additional 1 to 2%. This will allow you to pay back the interest into your plan account so that you can get the money back in the form of disbursements at or near your retirement time. Moreover, you don't have to pay taxes on the interest until retirement when you take out money from the plan account. Either of the loans must be repaid within 5 years of taking it except when it is used for the home financing which may consider payments after a longer term.
Before you decide upon a 401k plan or 403b loan, consider pros and cons of such loans.
- Taking a loan from any of these retirement accounts does not require a thorough checking of your credit history unlike any other loan. You also do not have to make a loan application.
- The interest rates charged on these loans are comparatively low and can vary according to the plan.
- You can generate a good deal of return money with your 401k or 403b account. Being a savings account, it provides you with an interest and then there are the interest payments on your loan which are also added to your contribution.
- Until and unless you retire and withdraw the cash from the account, you will not have to pay tax on the interest payments.
The possible consequences of taking a loan from your 401k and 403b Plan accounts are:
- When you pay back your loan with interest, you probably take out cash from your savings and checking accounts. This reduces the interest on the cash available in either of those accounts. Moreover, when you are taking a loan from the Plan account, the cash deposited in it reduces and so the interest on the deposited cash also reduces.
- When you pay off the 401(k) or 403(b) loan from the funds deposited in other accounts, the payments are made with after tax dollars. At retirement, you will have to pay taxes again when you withdraw cash from the plan account.
- Unless you pay off the loan, it will be taken as an early distribution from the account and you will owe federal and state income taxes along with the 10% penalty if you are below 59 and 1/2 years of age.
- If you quit your employment or if you are terminated, then the entire 401(k) or 403(b) loan amount should be paid back within a span of 60 days. But if you fail to pay off the loan, then it will be considered as a default case and you will need to pay the taxes and penalty.
401(k) or 403(b) loans are beneficial in the sense that they allow you to borrow cash from your retirement savings but do not charge taxes on the net interest except when you default. There are no such restrictions on the use of these loans except the guidelines put forward by different employers and they also do not require you to have a good credit profile.
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Maria C. Ramirez
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0.10 Dollars($)
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Post subject: loan 401k |
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| requesting loan from my 401k plan as soon as possible. |
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Jessica
 Community Mentor

Joined: 08 Jun 2004
Posts: 818 Location: OHIO
205.29 Dollars($)
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Post subject: RE: |
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Hi Maria,
If you are interested in taking a 401k loan, then you should contact the bank where you have created a 401k Plan account. You should talk to your employer whose contribution is similar to that of yours for the 401k Plan account. And, in case you have any other query, feel free to let us know about it.
Regards,
Jessica. |
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F Davis
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0.10 Dollars($)
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Post subject: lLoan against retirement account |
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| I am interested in taking out a loan against my STRS of Ohio Retirement account [$158000] and would be willing to pledge it and a life insurance policy as a gurantee for repayment. |
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adonis

Joined: 22 Oct 2005
Posts: 4417 Location: ALASKA
208.06 Dollars($)
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Post subject: RE |
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No problem davis, I will let samantha(moderator of this forum) know about your need and they will help you out.
This community has got lenders, you can join here so as to avail better sevice out from the community.
Thanks |
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Samantha
 Community Mentor

Joined: 16 Sep 2005
Posts: 1606 Location: MASSACHUSETTS
150.38 Dollars($)
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Hi Davis,
Welcome to MortgageFit Forums.
So far I know that the account balance in any plan under STRS can't be considered as a liquid asset and as such can't be held as collateral while applying for a loan.
In addition to that you are not entitled to withdraw funds while employed. So, I have doubts about the information what you have on loan against STRS plan.
I would like to check with them once again. For any other requirement or information you may get back to us always.
We will be happy to help you in the best possible manner.
God bless you.
For Mortgagefit,
Samantha _________________ Know how to compare lenders with mortgage booklet |
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ckalvesmaki
 Community Experts

Joined: 28 Jan 2006
Posts: 378 Location: Dallas
56.65 Dollars($)
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Davis,
Why do you think you can't qualify for a regular mortgage? _________________ Cedric Kalvesmaki
***Professional Disclaimer***
While I am a Mortgage Professional, this advice is generic in nature only.
888-383-9019
emails and PMs gladly answered
www.freedommortgagetexas.com
Freedom Mortgage
I live in TX but cover all 50 states |
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andy
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0.10 Dollars($)
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Post subject: 403b loan |
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I have around 36000 in my individual account plan (I.A.P.) and would like to borrow as much as possible so I can buy equipment for my next feature "Oceans 13" schedualed to start within a week or two. _________________ Need help choosing the right loan? Get free consultation from community lenders/consultant |
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Samantha
 Community Mentor

Joined: 16 Sep 2005
Posts: 1606 Location: MASSACHUSETTS
150.38 Dollars($)
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Hi Andy,
Welcome to MortgageFit Forums.
You can borrow money from your 403(b) plan but you should keep in mind that a 403(b) is intended to save money for your retirement years. You should borrow any amount from it only if it absolutely necessary and there are no other options left.
Whatever you borrow from the account isn't subject to income taxes or early distribution penalties but as a well wisher I must caution you that with this you risk your savings for the years when they are required most.
If you are certain that you can fill it up again then it's fine but do think twice before borrowing from this account.
God bless you.
For Mortgagefit,
Samantha _________________ Know how to compare lenders with mortgage booklet |
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douglas
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Post subject: |
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Hi Andy,
It is possible to get a 403(b) loan under certain conditions. It's better if you check with plan administrator to be assured that the loan will not be viewed as early distribution.
If it is viewed as a distribution and if your age is below 59 1/2 then, you may have to face 10% tax penalty. _________________ Need help choosing the right loan? Get free consultation from community lenders/consultant |
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Caron
 Moderator
Joined: 19 Jul 2005
Posts: 1562 Location: florida
266.68 Dollars($)
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Andy,
Is it that much necessary to take a loan from your 403(b) account? Did you try for any other options?
I admit that there are several advantages with a 403(b) loan as it is much easier to get than a commercial loan. You don't need any credit check and don't have to go through the lengthy approval process.
Also, you need not pay any taxes on the loan at the time of receiving the money within a limit. You can borrow 50% of your vested account balance.
But you must consider the fact that you have to repay it with after-tax dollars while the money goes into your account on a pre-tax basis. You are not going to get credit for all the taxes that have been paid already. If you are comfortable with that then you can go for it.
Thanks,
Caron |
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charles m
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0.10 Dollars($)
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Post subject: 401k account |
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| I have lost my job due to plant closing, I have approximately 250,000 in my 401 plan, can I borrow from this plan to invest in a business? |
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larry

Joined: 27 Jun 2007
Posts: 3328
474.61 Dollars($)
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Hi Charles,
Welcome to the forum.
You can borrow loan amount upto $50,000 from your 401k plan for investing in your business. You will probably be charged a lower interest rate on the loan. |
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KAA
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0.10 Dollars($)
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Post subject: 403b |
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| I have $115,000 in my 403b, and I have taken a retirement at age 61 and 8 months. This retirement enables me to return and work for my employer for 5 months (spring semester teaching) every year for the next 5 years. Am I able to borrow from my account at this point without it being considered as a distribution? |
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larry

Joined: 27 Jun 2007
Posts: 3328
474.61 Dollars($)
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Hi,
Welcome to the forum.
Your age is over 59 and 1/2 years. So you can withdraw from your 403b plan. |
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