has anyone ever took out a hardship loan from a 401k?

Question

how hard is it to get one

Answer 1

I took a regular loan from my 401k, it wasn't hard to do, i just called the toll free number and hit the appropriate buttons, and then they mailled me the paperwork, i signed it, and sent it back, and thay sent me a check. EASY PEASY.
I didn't have to show hardship. And the only time you have a tax penalty is if you withdraw the money instead of borrowing. If you leave the company before the loan is paid, you may either repay the loan in full, or it will be considered a withdrawal, at which time you have to pay the approriate taxes and you lose your company match.

Answer 2

A lot depends on your company's 401(k). An earlier answer said there's a10% penalty - that is not a rule, and I know of no company with such a provision. There might be some confusion with an early withdrawal, where there is a penalty. The 6 months wait before resuming deductions is not a rule, although some individual company plans do have such requirements - so check out your plan.

The comment about having to pay back the loan immediately if you leave the company is real. But since you are borrowing your own money, you have enough to pay. The downside is that this would definitely be a withdrawal, and you would have to pay the 10% penalty - that would have to be paid on your Federal tax return for the year. The 10% would be based on what it took to settle the loan -not the full amount. Depending on your state income tax laws, you may have a state liability also.

On the plus side, the loan is free - the inerest you pay goes right into your 401(k) account. Essentially, you are borrowing from yourself.

Those are the pros and cons - if you are sure your job is stable through the term of the loan and there is no wait period to resume contributing, it's a good way to go.

Answer 3

It doesnt take long at all. A week or two. The good thing about borrowing from your 401K is that the interest you pay goes into your own account. The bad part about a 401k loan is that if for any reason you lose employment with the company you are required to pay it back in full immediately. I would suggest only borrowing what you absolutly need to making sure that you leave more in the 401k account than you borrow. That way you have more in the account than you borrowed, in case payment is expected.

Answer 4

I know a person can get a loan from their 401K, but I didn't know you had to show proof of "hardship". I don't think if a terrible idea like some people might think. You pay yourself back with the interest (usually at 3-6%APR), and if you use the money to pay off high interest CC debt, it can be a good thing.

Answer 5

It's fairly easy to do. Afterall it is your money. You will still have to repay the loan because it has not been taxed. That is why if you quit your job and take your money out of a 401K you will be penalized twice by the Government. You will lose about 10-12% when you get the check and at the end of the year you will be taxed the same amount again. So make sure you stay at your job long enough to repay it.

Answer 6

Yes I have because the reason I did was the stocks I was in were high and I felt (as it happened) they would began to slide.
When you make a loan on your 401-k it is not really a loan at all.
They do not loan you (ex. ample 10,000) money and use your 401-k as collecteral. The sell shares of your 401-k amounting to and equal to the 10,000 plus any charges. after the so called loan you will see your cash value in your 401-k drop to an amount equal to the 10,000 and this will show up as a percentage of your 401 total. If you could barrow your shares (sell) while they are high and buy them back after they went down you would double, even triple your money, but the market is too moody for that. Also the interest they show you is supposely put back into your 401-k (usually 8 % and up) alone with the amount you barrowed as you pay it back into the system.
If you can get out of barrowing your 401-k it's better because if something happened you lost your job and could not make payments the goverment would call this an early withdrawal and charge not only immedate taxes on that amount, but also penalities.The IRS loves screwing you over this way.
Becareful (if you do barrow) to keep up with your account every week, and month or the amount you take out, and repay plus interest may never get back into your account. It happens quiet often and brokages and companies who are self insured depend on people not keeping up with business and brokeage accounts are not easy.

Answer 7

It is completely up to your plan administrator (your employer) as to whether or not loans are allowed and under what terms, so go back and ask your Human Resources department.

Keep in mind that it MUST be paid back before you leave that employer or the amount still owed is immediately subject to both taxes and penalties (which can add up to nearly half what you owe).

Borrowing from your retirement money should always be your last resort, but since you said hardship, I presume it is.

If you've terminated employment with that employer you can't take a loan, but you can do a rollover to a traditional IRA, then withdraw what you need (subject to the same taxes and penalties) or..go one extra step to eliminate the penalties and then if you qualify, roll it over to a ROTH IRA. If you do the Roth rollover (you must roll to a traditional IRA first, then convert), you will have to pay income taxes on the amount converted, but you can then withdraw the principal with no penalties or additional taxes.

Answer 8

I did 5 years ago when I left my husband and moved into a home with no septic. I had to install a septic tank or I could not live in the house. I owned the home and he didnt know about it. It was free rent for the rest of my life. A septic tank was my only concern so I got $3000.00
I was desperate and had no where else to turn for money. He never knew I even had the thing or would have asked for it in our divorce.
You just have to fill out a paper and request the amount of money you want and they will send you a check in the mail. You make a re-payment agreement before they mail you the money. Go to your human resources dept to get the paperwork.
Dont do it unless you are completely desperate and have no one to turn to for a loan. It is a bad mistake.

Answer 9

Yes, if it is truely a hardship loan, you don't have to pay it back, but check with your your plan adminsitrator. Hardships, are considered, lost of job, death in family, sometime, purchase of first home, but in in any event, it's your money and if you needed it use it. It's the only money you don't have to pay back, and if you're really in needed, it may be your best consideration (taking a second on your home (if you have one) may not be in your best interest, since you still have to pay it back, and your home is in jeparady; and if push comes to shove and you have to sale your home, you'd want to get the most out of it. So pulling funds from your 401K may be your fastestest and easiest way to do.

Answer 10

Don't do it. If you take a hardship loan, you pay a 10% penalty plus your normal tax rate. On top of that, you will be banned from contributing for at least 6 months. It is far better to take out a small loan. It can cost you over 30% of the loan in penalty and taxes. In addition, you are screwing up your future earnings which will be impossible to replace.