Self Made: NASE's Blog


Welcome to the Self Made.  This is a blog focused primarily on the self-employed and micro-business and full of fantastic posts by not only our team of experts but by YOU!  We realize that there are many ways to help the small businesses out there which is why we invite other business minded individuals to post here and help the rest of the community as well.

Can I Take A Loan From My 401(k)? [Ask The Experts Q & A]

Jan 11, 2012
Q: I read something several months ago about taking a loan from your 401K retirement plan. If you were at least 55 years old, you were not required to pay this back and there was no penalty for this. Is that true?

A: From a technical standpoint you still must repay the loan. If you don't repay the loan, regardless of how old you are, then the loan becomes a distribution. The tax treatment and potential penalties for such a distribution will then be dependent upon your age. The key point is whether a 10% penalty will apply to the distribution. If you are over 59 and 1/2 then no penalty will apply. If you are over 55 some exceptions to the penalty apply such as a distribution upon a separation from service, meaning that you no longer work there. Regardless, the distribution would be subject to ordinary income tax. For more detailed information please go to Publication 590 on the Internal Revenue's website at www.irs.gov. This publication includes much more information about early distributions and may help you more fully understand the consequences of your decision to borrow or withdraw from your 401k plan.

As always, NASE members can ask their tax questions to our tax professionals day or night by clicking here.
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