About Retirement Plan Loans. 401(k) plan allows for tax-deferred earnings in traditional accounts and tax-free earnings in new Roth-style accounts. And traditional plans enable you to make contributions in pretax dollars, helping to reduce your taxable income. It even offers a menu of professionally managed investments from which to choose.
But there may be another feature of your 401(k) or a similar retirement plan that you haven't considered: You may actually be able to borrow money from your account.
Currently, IRS allows you to borrow up to 50% of the total vested assets in your account, up to a maximum of $50,000. There may be loan minimums and certain other restrictions, depending on your plan's specific loan availability calculations.
We advice before you take a loan from your 401(k) plan, think some essential considerations:
- Check the rules before you borrow
- Weigh the pros and cons
- Ask to yourself, borrowing from 401(k): should me or shouldn't me?
- Make the most of your retirement plan.
The primary reason to invest in an employer-sponsored qualified retirement plan, such as a 401(k) plan, is to pursue your long-term financial goals. Remember, the earlier you invest and the longer you stay invested, the more you'll potentially benefit from tax-deferred or tax-free compounding.
But, retirement plan could be a source of funds, if you've accumulated assets in your account and you're in need of a loan.
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