Loans from Company Retirement Plans: You're the Borrower and Lender

Maybe you need access to your nest egg before retirement. After all, major expenditures like buying a home or a college education don’t come cheap!

If your employer-sponsored retirement plan has a loan feature, you can borrow up to $50,000 or half of your vested account balance, whichever is less. You'll be charged interest and must repay the loan within five years. Many plans offer the option to extend this repayment period if the money is used to purchase a primary residence.

Paying interest on your own money may seem silly, but think about this way: You’re only paying yourself. The interest helps replace the future earnings your nest egg lost when you took out the loan. You should consider your options carefully before taking out this type of loan. Remember, leaving the money where it is allows for the tax-deferred savings to grow. And, if you change jobs, you'll have to pay back the remainder of the loan before your leave your old job.

Next Steps
  • Need a loan? Consult with a tax advisor about whether a plan loan is the most prudent option for you to finance your big purchase
  • Then schedule an appointment with your financial advisor, to make sure that borrowing from your plan is the right option for you

This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.

WEBC 10.25.06/07    11.30.06

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