CFP

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Types of Retirement Plans - Loans from qualified plans


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.

Eligible plans
The following types retirement plans may permit loans:

  • Defined benefit
  • 401(k)
  • SIMPLE 401(k)
  • 403(b)
  • 457 plans sponsored by government employer

The following types retirement plans may not permit loans:
  • IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 457 plans sponsored by tax-exempt organization

Loan rules
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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