i have a 40,000 401k pension and im on a medical leave and need funds to get by pay bills, living expensces, ect my credit is toast can i use this 401k as a way to secure a loan of about 10,000 max if i can any suggestions would be helpful
2006-11-02 20:40:15 · 6 answers · asked by lansingmale43 2 in Business & Finance ➔ Credit
Federal law prohibits anyone from using a 401(k) account as collateral for a loan, except for a loan from the plan itself. Most plans allow for a loan of up 50% of your vested balance. However, unless you are being paid while on leave of absence, you may not be allowed to take a loan from the plan, because repayment must be done through payroll withholding. If this is the case for you, then a hardship withdrawal may be your only other option. Others have noted that a hardship withdrawal is taxable and subject to to additional 10% early withdrawal penalty if you are under 59 1/2.
2006-11-03 04:08:23 · answer #1 · answered by Andreas 3 · 0⤊ 0⤋
No, you can't. And even if you could, it would be an extremely bad idea.
You can, however, take a loan out against your own 401(k). This way, when you're paying it back, you're "paying yourself back." The only penalty is if you fail to pay it back, in which case you'll get charged the taxes on the money (since it was originally money you were able to deduct tax-free).
2006-11-02 20:58:20 · answer #2 · answered by Yishan 3 · 0⤊ 0⤋
I am almost positive that this is not allowed. You can borrow money from some 401(k)'s, but you can't pledge them as collateral. In your circumstances you might be able to take a 'hardship distirbution' from the plan, but I think that even that is still subject to income taxes and early withdrawal penalities (assuming your younger than 59-1/2).
http://www.401khelpcenter.com/hardships.html
2006-11-02 20:47:47 · answer #3 · answered by polyglot_1234 3 · 0⤊ 0⤋
When I purchased my home they included the amount I had in my 401k as part of my total funds so I would assume you would be able to do what you want in one form or another.
2006-11-02 20:49:22 · answer #4 · answered by Anonymous · 0⤊ 0⤋
No you can't because the funds are tax sheltered and if the lender had to realize on it's security, part or all would be taxed at source and the pay-out would be less.
Also the bank would be creating a potential tax liability.
2006-11-02 22:15:04 · answer #5 · answered by Jack 6 · 0⤊ 0⤋
the people who have your 401K can give you a loan, all you do it have to call them, you can take up to 50% in a loan
but you should leave it alone if you can
2006-11-03 00:15:18 · answer #6 · answered by bkbarile 5 · 0⤊ 0⤋