Benefits of a Retirement Plan Loan

When you need to borrow money, a retirement plan loan from your 401k retirement plan is one of your best options. There are several benefits to borrowing money from your 401k:

Retirement Plan Loan: Easy to Obtain

There are no credit checks or long credit applications to fill out. Since statutes governing retirement loan plans place no restrictions on what purpose or need the loans are for, other than making them reasonably available to all plan participants, you can borrow the money you need for any purpose you like.

Retirement Plan Loan: Low Interest Rates

Another plus with a loan from your retirement plan is that you pay a low interest rate, which is set by the plan, and is usually 1 or 2 percentage points above the prime rate.

Interest You Pay Goes Back to Your Plan

When you repay the loan, the interest you pay doesn't go to a loan company or credit card company. It goes right back into your retirement plan. This way, your plan continues to accumulate earnings through interest.

Interest Accumulates Tax-Free

Depending on the size and type of investments, your portfolio diversity and market performance, any interest that accumulates in your retirement plan grows tax-free. You only pay taxes on it when you take your money out of your 401k retirement plan when you retire.

You Choose Which Investments to Sell

Why sell off your best-performing investments to get the money you need? With a loan from your retirement plan, you choose which investments you'll sell. This allows you to leave your higher-performing investments to continue to appreciate.

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