is it possible to borrow money from your 401 k and if so what % do you have to pay back in tax's?

Answer 1

Many 401K plans will let you take a loan out, but they usually have require that the money is for home improvements, a new home purchase or medical expenses. You then re-pay the loan to your 401K account and pay interest on the loan. You do not have to pay taxes on the money unless you do not re-pay the loan. Check with your HR person at work and they can tell you the specifics of the plan that you have.

Answer 2

If your company allows it in their 401-K Plan, yes you can. Not all plans allow this, so check with your employer.
They will set you up with a payment plan "usually a payroll deduction, like the way they took out your contribution" however this amount is after tax, not tax deductable.
You do not pay any tax on the amount you borrwed as long as:
1. You continue to make the required payments back to the plan.
2. If you leave the company, you owe the entire unpaid balance in 1 lump sum, and any amount you can't pay back is taxable as income. And if you are under 59 1/2 years old (though there are exceptions, see an accountant) you would also have an additional 10% Federal Tax Penalty on the amount you didn't or couldn't pay back.
See an accountant and get the rules of your employers 401-K Plan before proceeding...

Answer 3

All of the 401K's I've dealth with over the past 15 years of my career have allowed you to borrow against your contribution.

I've borrowed against mine 3 times. In all cases, the interest on the loan was Prime plus a fixed percentage. It will be spelled out in the loan documentation. The payment will be automatically deducted.

There are no tax implications during the loan itself since you were borrowing money that is already yours. The interest you pay back on the loan is considered income to the 401K account.

However, if you were to close your 401K (roll it over to an IRA, quit your job, get fired, etc.), the outstanding loan balance would be considered income and taxed at your normal rate plus a 10% penalty. Assuming you're in a 30% tax bracket, that would mean the balance would be taxed at 40%. That's more expensive than getting a cash advance on your credit card!

The moral of the story is that this sort of loan is quite useful and normally a low-cost source of funds however, your job must be secure and you must be in a position to pay it back in a reasonable amount of time.

Talk with your HR department as some 401K's restrict the loan use. To be honest, this wasn't an issue for me because there was no documentation required as proof. I just had to check a box on the form. My HR manager said it was a formality.

Good Luck!

Answer 4

With some 401Ks, it is possible. I believe you don't pay taxes if you pay back as required.

Answer 5

Check with and follow the rules and regulations of the service provider!