Qualified plans and certain other employed-sponsored plans may permit participants to borrow a portion of the assets held in their accounts. These loans must meet certain conditions to avoid early withdrawal penalties and ordinary taxation.
The following types retirement plans may permit loans:
- Defined benefit
- SIMPLE 401(k)
- 457 plans sponsored by government employer
The following types retirement plans may not permit loans:
- SEP IRAs
- SIMPLE IRAs
- 457 plans sponsored by tax-exempt organization
There are strict conditions on loans from eligible retirement plans. These conditions include:
- Loan amounts must be the lesser of:
- $50,000 (reduced by excess of highest balance of outstanding loan in one-year period before new loan minus outstanding balance on date of new loan).
- Half the present value of vested balance (but not less than $10,000).
- Loan must be repaid within five years (except for loans to acquire main home).
Other Tax-Advantaged Retirement Plans
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