Many people are not aware of the process of borrowing money from your 401k plan so I thought it would be good to share how easy and quick this process can be for those that may want to explore this avenue of accessing funds.
If you are ever in the need of funds, one avenue to look to is your 401k plan. Most plans have a limit on how much you can borrow – in my experience most of these plans have $50k as the limit. You must be thinking that taking funds out of 401k involves paying a hefty fee – no that is not correct. If you borrow from your 401k plan, you are not charged hefty fees.
Keep in mind you are only borrowing the funds, meaning there is a contingency that you will have to pay back the funds over the span of 5 years back into your 401k plan. There are few ways of doing this – you could have it deducted monthly back from your account over the course of 5 years. You could also make additional payments to pay back the amount sooner than the 5 year time frame. The benefit of putting the money back in the 401k sooner is that you could start gaining market returns on the 50k that you removed/borrowed from the plan.
One can process this directly online from their 401k account and it takes 2-3 weeks to receive the funds from your plan. The online process from your 401k account is relatively quick and easy – if you run into challenges or have questions, I highly recommend contacting your 401k provider.
Another important aspect is your job status – you must continue to be employed in order to benefit from this program. If you terminate your job, you typically have to pay the full amount back to your 401k plan within 6 months.
It is always good to be aware that there are options available during an emergency, and this option can be quick and easy fix.