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Planning for a Loan from 401(k)/403(b) Retirement Account

When you are in need of cash and have no other options to get the required amount, [b:ed9d5ded73]401(k) and 403(b) plan loans[/b:ed9d5ded73] can be alternatives.

When contributing to your 401(k) or 403(b) Retirement Plan, you can borrow up to 50% of the deposited account balance or $50,000, whichever is less. But if you have already taken out a 401k loan within the past 1 year, then you will be offered the difference between the outstanding loan balance and what you have already received.

If you are experiencing 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 make a hardship withdrawal, because a withdrawal from a 401(k) plan account before 59 and 1/2 years of age requires you to pay a 10% penalty.

[b:ed9d5ded73]Payments against 401(k) or 403(b) loans:[/b:ed9d5ded73]
Getting a loan from a 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 to your plan account so that you can get disbursements at or near your retirement time. Moreover, you don't have to pay taxes on the interest until retirement when you take money out from the plan account. Either of the loans must be repaid within 5 years unless the money is used for home financing, which may allow a longer repayment term.

Before you decide upon a 401k plan or 403b loan, you should consider the [b:ed9d5ded73]pros and cons[/b:ed9d5ded73] of these loans.

Below are the pros of getting a 401k or 403b loan:
[list:ed9d5ded73][*:ed9d5ded73] Getting a loan from any of these retirement accounts does not require a thorough check of your credit history unlike other loans. You also do not have to fill out a loan application.

[*:ed9d5ded73]You can generate a good deal of savings with your 401k or 403b account. Being a savings account, it gives you interest and then there are the interest payments on your loan which are also added to your contribution.[/list:u:ed9d5ded73]
The possible consequences of taking out a loan from your 401k and 403b Plan accounts are:
[list:ed9d5ded73][*:ed9d5ded73] When you pay back your loan with interest, you take out cash from your regular checking and savings accounts. This reduces the interest being paid on either account because the amount deposited in each account is reduced.

[*:ed9d5ded73]Unless you pay off the loan, it will be seen as an early distribution from the account and you will owe federal and state income taxes along with the 10% penalty if you are under 59 and 1/2 years of age.

[*:ed9d5ded73]If you quit or are fired, then the entire 401(k) or 403(b) loan amount must be paid back within 60 days. If you fail to pay off the loan, then it will be considered as a default and you will need to pay taxes and penalties. [/list:u:ed9d5ded73]
401(k) or 403(b) loans are beneficial because they allow you to borrow cash from your retirement savings but do not charge taxes on the interest unless you default. There are no restrictions on the use of these loans except what your employer may have put into place. These types of loans do not require you to have a good credit score.

Related References:

[list:ed9d5ded73][*:ed9d5ded73]Retirement Plans[/list:u:ed9d5ded73]

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

requesting loan from my 401k plan as soon as possible.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Jessica's picture
Jessica | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Samantha's picture
Samantha | Joined: September 16, 2005 11:59 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

ckalvesmaki's picture
ckalvesmaki | Joined: January 28, 2006 06:28 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Davis,

Why do you think you can't qualify for a regular mortgage?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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Samantha's picture
Samantha | Joined: September 16, 2005 11:59 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Caron's picture
Caron | Joined: July 19, 2005 08:37 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi,

Welcome to the forum.

Your age is over 59 and 1/2 years. So you can withdraw from your 403b plan.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

if i already have an outstanding loand on my 401k, can i still close my account minus penalties or does the loan have to paid off first

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larry2's picture
larry2 | Joined: June 27, 2007 02:50 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi richie.

The loan needs to be paid first. BTW why do you want to close the account. Why do you want to close the Retirement Account?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

A coworker defalted on a 403b loan and the amount of the loan was reported as income to the IRS. The company will no longer accept payments and tell her she has to pay the loan back in full and she will still have to pay the 10% penalty along with the income tax. Is this correct?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi s.biggs,

When a person defaults on a 403b loan, the unpaid debt is considered as an early distribution and hence one has to pay taxes and penalty if he's under 59 and 1/2 years of age.

Take Care

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

a friend of mine is getting ready to retire soon. He is over 59 and 1/2 years old. 403b totals around 160,000. wants to borrow against the account around 30,000 to pay off bills. Any suggestions on how he could invest his money to make it last as long as possible and live off some of the interest...

thanks for blog

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

You mean you'd like to invest from your 403b plan account after paying off the bills? You can invest in real estate or mutual funds. But I suppose you should talk to a financial advisor in this regard.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i am 60, still working. i am afraid of the money market. I want to get mu 403B out and pay bills. What kind of penalty will I face? And do I have to pay it back?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Sue!

As far as I know, you can take loans on 403B. However, you will be charged interest on that. Failure to pay it will lead to penalty as well.

Thanks,

Jerry

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Iwould take a loan from 403(b)plan

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Can you contribute to bot an IRA and 403b during the same ...for the same year?

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Jack!

Yes, you can contribute to the both simultaneously. You can deduct the IRA contribution or not will depend on a variety of factors. However, if you can contribute to the Roth IRA will depend on your income.

Thanks,

Jerry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

can I just requesting a loan from my 401k plan as soon as possible?

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Yes, you can definitely take a loan on your 401K loan. But there are certain criteria attached to it. Go through to the above link to know more about it.

Thanks,

Jerry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

can i borrow maney against my strs retirement account. i am desperate for cash and i don't want to resign my position to gain the cash

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi j!

Normally you cannot borrow from you retirement account when you are working and I don't think you can consider this as a collateral. You can check the following link for a discussion on the strs retirement account.

http://www.mortgagefit.com/401k-403b-loans.html

Hope this helps you.

Thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

my place of employment did away with our retirement plan as of dec.31,2007 and we are able to take the ammount minus 20% for federal taxes. Is this a good idea I want to use some of the money to pay down my mortgage and save the rest

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest!

You can either pay off your mortgage with that money or you can also rollover your 401k plan with your new employer if any or you can roll it over with the IRA.

Thanks.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I've defaulted on my 401b loan, can I use money that remains in my 403b account to pay off the defaulted loan?
Also, my employer will no longer allow me to have 403b deposits made to my current carrier, they claim it's mandatory to switch to the company of their choice. What options do I have with the money in my existing 403b account?

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Dyanne

As far as I know, people are allowed to take loans on their 403(b) plans. However, you will have to repay the loan in at least quarterly installments. If you are buying a primary residence, then you have 30 years to pay it back but if you are taking loan for other reasons, then you must pay the loan back within a 5-year period.

As far as your second question is concerned, I haven't heard of anything like "switching to the company of their choice".

Thanks

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

where can i get one?

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Edmund Anderson,

Check out a sample 403b withdrawal form. You can show this form to your 403b plan administrator and check whether it is applicable in your case.

Thanks

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Is it true that you can borrow off your 403b plan once every calender year even if you have a small loan out already for 2,400.00

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi ricooo,

Have you taken the loan from the 403(b) account?

Thanks

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

when I contacted the lincoln financial group who is investing my money of th 403B , they refused to issue the Loan even it is to pay off my daughter's school loan as her income is not enough to pay it snd Fannie May charges 6.8% . How can I make them accept .. Regards

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Negotiating with them is the option for you. You will have to convince them as to why you need the loan.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi. I am in the process of buying a home. With the new FHA guidelines, I have only saved the amount to serve as the down payment. I just found out that I will need to come to the table with an additional 5k down for closing costs. Closing is scheduled for March 27th. What is your opinion on boroowing this amount from my STRS which has about 65k in it? I am tenured and have been teaching in my current district for 9 years.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

As you will be teaching in the same district for some more time, I think you will be able to borrow a certain amount from your STRS.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i have a balance of $2100 on the loan and have $8700 in the account.what will happen if i default,also does defaulting go against a persons credit history.thank you

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

does it go against my credit

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi lisalucy,

If you default on the 403b loan, the unpaid balance will be treated as an early distribution from your 403(b) and will lead to taxes and a 10% penalty. As far as I know, if you default 403b loan, your credit will be affected.

Thanks

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

what happens when i take out my money from my 403b would i get the full amount or no when im 60 years of age

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi ishmael,

You can take out your money from 403b account without penalty when you are 59.5 years of age. You will also be able to take out money from your account if you retire before 55 years of age. You can also get your money if you become disabled as defined by IRS code 72(m) (7). You can also take money as a loan from your 403b account.

Thanks

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Realgeni's picture
Realgeni | Joined: April 13, 2009 08:03 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

ishmael brana

Since 403b plans were created to help you save for retirement, there may be stiff penalties for withdrawing money early. If you do, you’ll owe:

Income taxes on the total withdrawal

A 10% penalty if you’re younger than 59½
20% federal income tax withholding unless the entire amount is rolled over to another qualified retirement plan or IRA

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have a 403B account with $25000 in it. I am 60 years 8 month old. Fo I have the right to withdraw $5000?

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest!

Welcome to forums!

You can withdraw the assets from your 403B account when you are 59.5 years of age. As you're more than 60 years old, I don't think you would face issues in withdrawing the money.

Feel free to ask if you've further queries.

Sussane

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have a 401K account valued currently at around $250,000. I won't be 59 1/2 until January of next year. I've filed for divorce - is it wise to borrow against my 401K, I would use the money as a down payment on a condo. My current husband and I have a home valued at %500,000+on a beautiful lake in MI, but it is not selling. What would you do?

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