taking a loan from your 401k
· I am thinking about taking a loan against my 401k. My parents inherited a house recently that is in need of some repairs to get it into condition to sell. The house is pretty nice on a great piece of property, it just wasn’t maintained all that well over the last 5-7 years. It needs a new roof, some flooring repairs etc.
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Before taking out a 401(k) loan, look at your other options and see which one will cause you to lose the least amount of money. If your only other option is to take out a payday loan and end up.
· But look into taking a 401k loan instead. Under IRS rules, you can borrow up to 50% of the value of the plan, up to $50,000. You can make payments out over as long as five years. That will get you the money you need to pay the tax debt, without creating a new tax liability.
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· When filling out the loan application, the borrower must list a reason for taking a loan. One may choose “any purpose”. Choosing that option enables retirement account owners to take a loan for anything they wish. 401k loans must be paid back within 5 years, with interest.
With a 401k loan, you pay the interest on the loan out of your own pocket and into your own 401k account. The interest rate on a 401k loan may be lower than what you could obtain through a commercial lender, a line of credit, or a credit card, making the loan payments more affordable.
(The interest rate you pay the 401K account is irrelevant, since that goes from one pocket to another). If your fund has been earning 5%, for example, you will no longer be earning 5% on the money you take out as a loan, so that is the cost of the loan to you. In contrast, the cost of mortgage insurance is the mortgage rate plus about 5%.
You can use 401(k) funds to buy a home, either by taking a loan from the account or by withdrawing money from the account. A 401(k) loan is limited in size and must be repaid with interest, but it.