Things to Consider Before Taking a Loan

1. Your plan’s specifications: Before taking a loan from your account, find out: if there are fees to set up and maintain the loan, whether your plan has a maximum number of loans you may have at one time, and if your plan has a minimum account balance you need to have before taking a loan.
2. Possible taxes and penalties: If you are not able to pay back the remaining balance during the specified loan repayment period or you change employers and are not able to pay it back at that time, that amount will be considered a “distribution” from your account. You would have to pay taxes and possible penalties on the amount you still owe.
3. Potential for missed investment returns: You could be losing money if the rate of return your remaining invested contributions are earning is higher than the interest rate on your loan (the amount you are paying yourself back each month).
4. Other options for borrowing: Your retirement account is meant for long-term financial goals, rather than short-term objectives. This account should be a last option for borrowing money. There may be alternatives to cover your financial needs.

To learn more about retirement planning, use our tools in the One Day is Today!® online toolbox.

Fees, limits, terms, and requirements for loans vary from plan to plan. Plan participants should carefully consider the risks, tax implications, and retirement investing consequences before taking a loan from an employer-sponsored retirement plan. Contact the plan sponsor (employer) with any questions.

Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice.