Your 401(k) plan may allow you to borrow from the plan. However, you should consider a few things before taking a loan from your 401(k).
If you don’t repay the full amount of the loan, including interest, according to the loan’s terms, the unpaid loan amount is a distribution to you from the plan. Your plan may even require you to repay the remaining amount of the loan in full if you stop working for the employer sponsoring the plan. Otherwise, the unpaid amount is considered a plan distribution to you.
Generally, you have to include any previously untaxed amount of the distribution in your gross income for the year in which the distribution occurs. You may also have to pay an additional 10 percent tax on the amount of the taxable distribution, unless you:
Are age 59 1/2 or older, or
qualify for another exception to the 10 percent additional tax penalty.
Any unpaid loan amount also means you will have less money saved for your retirement.
Remember, your 401(k) plan is designed so you can save money while working for your retirement. So, before borrowing from your future, carefully consider all other alternatives. __________________________________________________________________________________________
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