|
| |
A Guide to Low Cost Secured Loans
The idea of low cost secured loans might sometimes seem like nothing more than a fantasy… it doesn't have to be, however. Low cost secured loans can be found, even for individuals with less-than-perfect credit; it's all a matter of knowing where to look ...
Bad Credit Bill Consolidation Loans
A bad credit bill consolidation loan may be one of the best options available if you have bad credit and a lot of debt. A bad credit rating can be fixed, but it is much harder if you still have outstanding debts. The best way to improve your credit ...
Home Loans and Mortgages – Beware of Deed Theft Scam
The average home in the United States has a value of $206,000, a record amount. Real estate prices have been rising throughout the country during the last five years, and homeowners have seen the value of their property skyrocket. In California alone, the ...
|
|
|
|
| |
The statutes governing plan loans place no specific restrictions on what the need or use will be for loans, except that the loans must be reasonably available to all participants. But an employer can restrict the reasons for loans. Many only allow them for the following reasons: (1) to pay education expenses for yourself, spouse, or child; (2) to prevent eviction from your home; (3) to pay un-reimbursed medical expenses; or (4) to buy a first-time residence. The loan must be paid back over five years, although this can be extended for a home purchase.
Usually the participant is allowed to borrow up to 50% of their vested account balance to a maximum of $50,000 (set by law). Because of the cost, many plans will also set a minimum amount and restrict the number of loans any participant may have outstanding at any one time.
Loan payments are generally be deducted from payroll checks and, if the participant is married, they may need their spouse's to consent to the loan.
Funds obtains from a loan are not subject to income tax or the 10% early withdrawal penalty. If the participant should terminate employment, often any unpaid loan will be distributed to them as income. The amount will then be
subject to income tax and may also be subject to 10% withdrawal penalty. A loan can't be rollover into an IRA.
There are generally four reasons given to avoid 401k loans if possible:
* Lower investment return. According to the General Accounting Office, the interest rate you pay yourself on your plan loan is often less than the rate your plan funds would have otherwise earned, and you lose the benefits of compound interest.
* Smaller contributions. Because you now have a loan payment, you may be tempted to reduce the amount you are contributing to the plan and thus reduce your long-term balance.
* If you quit working or change jobs, you must pay back the loan right away. It's not uncommon for plans to require full repayment of a loan within 60 days of termination of employment. If you don't repay, the loan is considered defaulted, and you are taxed on the outstanding balance, including excise taxes in many cases.
* Repayment of principal and interest is made with after-tax dollars. By contrast, a home equity loan from a bank is often structured so that the interest you pay is tax-deductible. On a larger loan, this could add up to significant savings.
Go to www.401khelpcenter.com for more information on this and other 401k issues.
About the Author
Mr. Meigs is the founder and President of 401khelpcenter.com, LLC a three-year-old Internet Company based in Portland, Oregon. It is a leading provider of information, opinion, analysis, news, rules, and other 401k resources for plan sponsors, small businesses, and employees.
|
|
|
|
|
|
 |
Local students struggle less with debtHouma CourierMore students nationally are having trouble paying back their student loans, a new report says, although Houma-Thibodaux's students seem to be faring better. A nationwide survey of bankruptcy attorneys unveiled this week found that more than four out ...and more » |
|
