401k Plan Loans - An OverviewWritten by Rick Meigs, Publisher, 401khelpcenter.com
Allowing loans within a 401k plan is allowed by law, but an employer is not required to do so. Many small business just can't afford high cost of adding this feature to their plan. Even so, loans are a feature of most 401k plans. If offered, an employer must adhere to some very strict and detailed guidelines on making and administering them. The statutes governing plan loans place no specific restrictions on what need or use will be for loans, except that loans must be reasonably available to all participants. But an employer can restrict reasons for loans. Many only allow them for 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 participant is allowed to borrow up to 50% of their vested account balance to a maximum of $50,000 (set by law). Because of cost, many plans will also set a minimum amount and restrict number of loans any participant may have outstanding at any one time. Loan payments are generally be deducted from payroll checks and, if participant is married, they may need their spouse's to consent to loan. Funds obtains from a loan are not subject to income tax or 10% early withdrawal penalty. If 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.
| | Personal Finance Worries? Written by John Q. Miller
Are you nervous about your personal finances? The irrational exuberance of 90s that led to double-digit gains for almost any investment portfolio is over. Now, you might consider yourself fortunate if your investments are losing less than S&P 500. Add investment worry to regular personal finance worries of meeting your monthly budget, slaying debt dragon, and starting/building that elusive emergency fund. Will your savings and investments be able to meet your retirement, children’s college funds, and other goals? Although no one can see future, there are things that you can do to reduce your worries. Knowledge Is Power Learn and become more skilled in financial matters. The best way to improve your financial education is to read personal-finance magazines, books, and even newspapers. The educational materials sent out by mutual-fund companies and brokerages are also valuable. You may come across conflicting information and advice, but if you read widely, you will eventually get a better idea of how to manage your money. Do-it-yourselfers are not only people who can benefit from learning more. If you use a financial planner and yet are knowledgeable about investments, insurance, etc., you are more likely to end up with a solid financial plan. If you find yourself teamed up with a inadequate or unethical adviser, and you have a good understanding of investing, you are more likely to recognize bad advice.
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