401(k) Loans

Although your plan may allow you to borrow from your account, you should be aware of what it means to take out a loan from your 401(k) account.

You’ll generally have to repay the loan amount plus interest. If you don’t repay the loan, including interest, according to the loan’s terms, any unpaid amounts become a plan distribution to you. Your plan may even require you to repay the loan in full if you leave your job.

Also, you’ll generally have to include any previously untaxed amount of the distribution in your gross income in the year in which the distribution occurs. You may also have to pay an additional 10% tax on the amount of the taxable distribution unless you are at least age 59 ½ or qualify for another exception.

Any unpaid loan amount also means you’ll have less money saved for your retirement.