• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer
  • Home
  • Services
    • Services Overview
    • Financial Planning
    • Retirement Strategies
    • Investment Management
    • How We Work
  • Blog
  • Resources
    • 2018 Tax Rates
    • 2019 Tax Rates
  • About
    • About
    • Fiduciary Oath
    • Location
  • Contact

Retegy

Save Money on Taxes, Invest the Difference, Retire Happy!

  • Home
  • Tax Strategies
  • Investing
  • Financial Planning
  • Retirement

401(k) Loan Repayment

July 11, 2019 By Retegy

A longer repayment time can be an advantage.

The conventional wisdom about taking a loan from your 401(k) plan is often boiled down to: not unless absolutely necessary. That said, it isn’t always avoidable for everyone or in every situation. In a true emergency, if you had no alternative, the rules do allow for a loan, but they also require a fast repayment if your employment were to end. Recent changes have changed that deadline, offering some flexibility to those taking the loan. (Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.)

The new rules. Time was, the requirement for repaying a loan taken from your 401(k)-retirement account after leaving a job was 60 days or else pay the piper when you file your income taxes. The 2017 Tax Cuts and Jobs Act changed that rule – now, the penalty only applies when you file taxes in the year that you leave your job. This also factors in extensions.1

So, as an example: if you were to end your employment today, the due date to repay the loan would be the tax filing deadline, which is April 15 most years or October 15 if you file an extension.1

What hasn’t changed? Most of what transpires after a 401(k) loan still applies. Your repayment plan involves a deduction from your paycheck over a period of five years. The exception would be if you are using the loan to make a down payment on your primary residence, in which case you may have much longer to repay, provided that you are still with the same employer.1

You aren’t just repaying the amount you borrow, but also the interest on the loan. Depending on the plan, you’re likely to see a prime interest rate, plus 1%.1

If you do take the loan, a good practice may be to continue making contributions to your 401(k) account, even as you repay the loan. Why? First, to continue building your savings. Second, to continue to take advantage of any employer matching that your workplace might offer. While taking the loan may hamper your ability to build potential gains toward your retirement, you can still take advantage of the account, and that employee match is a great opportunity.

Provided by Retegy LLC

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – kiplinger.com/article/taxes/T001-C001-S003-ex-workers-get-more-time-to-repay-401-k-loans.html [2/13/19]

Filed Under: Financial Planning

Primary Sidebar

Market Update

Market Update Image

Market Update (January 2021)

  • Email
  • Facebook
  • LinkedIn
  • Twitter

Recent Posts

  • Market Update (January 2021)
  • End-of-the-Year Money Moves. 2020 Edition
  • Market Update (December 2020)
  • Market Update (November 2020)
  • 2021 Limits for IRAs, 401(k)s and More
  • Why Roth IRA Conversions May Now Be Advantageous
  • FAFSA Applications Are Now Open
  • Market Update (October 2020)
  • Market Update (September 2020)
  • Market Update (August 2020)

Featured

year end image

End-of-the-Year Money Moves. 2020 Edition

By Retegy

401k, IRA Savings

2021 Limits for IRAs, 401(k)s and More

By Retegy

Magnified Roth IRA

Why Roth IRA Conversions May Now Be Advantageous

By Retegy

More Posts from this Category

Footer

Social

  • Email
  • Facebook
  • LinkedIn
  • Twitter

Legal

Disclosures

Privacy Policy

Our Office

200 Spectrum Center Drive, Suite 300
Irvine, CA 92618
Get directions
(949) 662-3212
info@retegy.com

Navigation

  • Featured
  • Financial Planning
  • Investing
  • Market Update
  • Retirement
  • Tax Strategies

Copyright © 2021 Retegy LLC. All Rights Reserved. Retegy LLC is a Registered Investment Advisor.

Retegy LLC is a registered investment advisor offering advisory services in the State of California and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by Retegy LLC in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or under an applicable state exemption.

The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible under applicable laws, Retegy LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. Retegy LLC does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall Retegy LLC be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if Retegy LLC or a Retegy LLC authorized representative has been advised of the possibility of such damages. In no event shall Retegy LLC have any liability to you for damages, losses, and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.

 

ADA Compliance Policy: Retegy LLC is committed to keeping our site compliant with the Americans with Disabilities Act. We welcome feedback on how to improve our site to make it accessible to everyone.