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  1. #1
    Join Date
    Mar 2008
    Posts
    176

    Default Loans Against Your 401K

    My question involves labor and employment law for the state of: PA


    are there federal laws pertaining to the handling and administration of loans against your 401k? if so, where could I find that information? i want to take a loan but they are telling me that i have to pay the old one off first and i can not take a new one and consolidate the old with the new. I thought that if you have a hardship, it should not matter (hardship could be secondary education, medical bills, foreclosure, etc)

  2. #2
    Join Date
    Apr 2007
    Location
    Il.(near StL,Mo.)
    Posts
    5,252

    Default Re: Loans Against Your 401K

    I believe it depends on what your plan document says.

  3. #3
    Join Date
    Jun 2006
    Location
    Massachusetts
    Posts
    24,521

    Default Re: Loans Against Your 401K

    If you are asking whether or not it is a law that says you cannot take a second one until the first one is paid off, no, that is not law.

    However, the laws on 401ks are VERY highly regulated and an employer MUST follow what the plan document says. Failing to do so can result in the entire plan being cancelled by the IRS.

    If the company plan document says that you cannot take a second one until the first one is paid off, then as far as the Federal government is concerned, for employees of that company that is the law.

  4. #4
    Join Date
    Feb 2008
    Posts
    1,179

    Default Re: Loans Against Your 401K

    I think you are confusing loans with hardship withdrawals. However, like cbg stated, 401k plans are allowed to have no loans, one loan or multiple loans and are allowed to choose whether or not to allow hardship withdrawals when the plan is first set up and later amended. Some plans only allow loans for hardship withdrawal reasons. So it is easy to get confused.

    There are some maximum loan amounts in the 401k laws that require the high 12 month balance of the loan be considered when giving a second loan or "refinancing" a first loan for more money. This could also play into the answer you are being given.

    You need to ask your HR/plan administrator for a SPD (Summary Plan Description -- basically a condensed version of the full plan document) and a copy the loan policy to be sure what options that you truly have.

    From a financial standpoint, even if you have no other place to get a loan/withdrawal from, taking a 401k loan or hardship withdrawal is not a wise move...because of loss of earnings and possibly tax consequences. The whole point of saving in a 401k is the time value of money and getting enough equity to earn compounded interest over time. It's hard to ever go back and recover that loss.

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