Personal Loans from Your Retirement Account |

Personal loans can come from a variety of sources, but one popular source for personal loans is a retirement account. It makes sense. It’s money you’ve been socking away to pay for your lifestyle to live out your golden years, but if you’re young and need money now, your golden years may feel far enough away to tap into your retirement funds now. Of course, there are advantages and disadvantages to taking out personal loans against your retirement account, but in a pinch it may be a better option than running up your high-interest consumer credit cards.

Personal Loans from a Retirement Account

Before you start dipping into your retirement savings, step back and determine how much money you need to borrow. Since retirement accounts, such as 401(k) plans, typically have a personal loans provision, it is possible to borrow the money but there are strings attached. For this reason, you only want to borrow the amount you need. In other words, don’t get greedy. After you know how much you need, go to the human resources department of your company or contact the investment advisor who manages the account. Keep in mind, too, that if you quit the job or get fired from the job that holds your 401(k) plan, you have to pay back personal loans within 60 days or the IRS charges you early withdrawal penalties and income tax. If you’re borrowing from a traditional or Roth IRA account for your personal loans, you have to pay income tax, depending on whether you are withdrawing contributions or earnings.

The human resources department or financial advisor can provide you with the forms you need to complete and submit in order to obtain the money from personal loans. Once the money is available, you can sign for the loan and receive the money. Keep in mind that if you have a spouse, your spouse most likely has to sign the paperwork as well. Generally, you can obtain personal loans from a retirement account within seven to ten days.

Tips and Warnings

Most retirement accounts have a minimum loan amount of $500, with a maximum of $50,000. If your employer matches funds for retirement, these funds are typically not available for personal loans. The term for personal loans from retirement accounts tends to be for five years or less, paying equal monthly payments until the loan is paid in full. Typically, interest rates are one percent above the prime rate. Similar to other types of personal loans, loans from retirement accounts usually have origination fees and annual maintenance fees to obtain the personal loans.