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Loan from 401k Plan

Loan from 401k Plan You can borrow money from the 401k Plan. Your ability to obtain loan depends on several factors.

Loan rules and requirements

There are various rules and requirements to obtain any loan.

Loans are available to participants on reasonably equivalent basis.

  • All loans must be adequately secured. You must sign a promissory note along with a loan pledge. Generally, you must use your vested interest in the 401k plan as security for the loan; in any case your balance of all loans does not exceed 50% of vested interest in the plan.
  • You will be charged a reasonable rate of interest for your loan on 401k vested balance.
  • The term of your loan may not exceed five years.
  • If the loan on 401k vested balance is for the purchase of your principal residence, the administrator may permit a longer repayment term.
  • You must repay your loan through payroll deduction.
  • All payments of principal and interest by you on a loan will be credited to your 401K Plan account.
  • The amount the 401k Plan may loan to you is Limit by IRS code.
  • No loan in an amount less than $1000 will be made on 401k vested balance.
  • The maximum number of loans on 401k that you may have outstanding at any one time is 1.
  • If you fail to make payments when they are due under the terms of the loan, you will be considered to be “in default”. The administrator will consider your loan to be in default if any scheduled loan repayment is not made by the end of calendar quarter. In this case the plans have authority to take all reasonable actions to collect the balance owed on the loan. This could include filing lawsuit or foreclosing on the security for the loan. Under certain circumstances, a loan that is in default may be considered a distribution form the 401k plan and could result in taxable income to you.
  • If you become entitled to a distribution from the plan (except in the case of an in-service distribution or a hardship distribution), your loan becomes due and payable in full immediately. You may repay the entire outstanding balance of the loan including any accrued interest.



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