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Considering a loan from your 401(k) plan?

Your 401(k) plan may allow you to borrow from your account balance. However, you should consider a few things before taking a loan from your 401(k).

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.

Generally, you 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.

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Page Last Reviewed or Updated: 20-Aug-2013