Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 936 votes
6y
You need to ask your employer this question. Many plans allow loans and I am not aware of them having significant limits on the purpose of the loan. My guess is, "Yes, you can."
Investor · Cincinnati, OH · Member since 2015 · 242 posts · 182 votes
6y
@Russell Mills. Call your 401K plan administrator. You can probably borrow 50% of your balance or $50K, whichever is less. Your payments will probably be based on a 60 month amortization @3% and automatically deducted from payroll. If you leave your balance will be due in full. This is an odd request and probably a bad idea.
Lender · Rockville, MD · Member since 2008 · 498 posts · 199 votes
6y
Not sure what situation you are going through at this time, and I hope that it gets better. That said, whatever it is, it too shall pass and you will persevere.
For my two cents, definitely a bad idea but only do it, if that is the only option.
Could you ask your employer to advance you a paycheck or two, so you can secure your rent or ask friends / families for help temporarily until you are back on your feet?
1) You can only borrow from your 401k if the plan allows you to do so - so check with the plan administrator.
2) If the 401k plan is through your former employer, you won't be able to take a loan. However, in that case and if you are self-employed with no full-time w2 employees working for you, you could set up a Solo 401k with a provider that allows for 401k participant loans, rollover the funds and then take a loan from the Solo 401k.
3) Here are the general considerations regarding 401k loans.
401k Participant Loans
If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k. The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.
Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).