What are the general rules regarding loans from 401(k) plans?
While companies are allowed to offer loans in 401(k) plans, they are not required to do so. Your Summary Plan Description (SPD) will state whether or not your employer allows loans in your plan. Generally, loans must be repaid within five years, although for first-time home purchases, the repayment term can be longer. You are allowed to borrow up to 50% of your vested account balance to a maximum of $50,000. Many plans also set a minimum amount and restrict the number of loans you can have at any one time. Loan payments are usually deducted from your paycheck. If you are married, you may need your spouse to sign a consent form. If you terminate your employment, any unpaid portion of your loan(s) will be considered income and be subject to taxation and, if you are under age 59 1/2, an additional penalty.
