Retirement 101

Can I borrow money from my plan?

Your plan’s rules determine whether you can borrow money, how often you can borrow and whether you can have more than one loan at a time. You’ll need to pay interest on the amount you borrow.

Not all plans allow loans. When a plan does allow workers to borrow money, the IRS limits the amount to no more than 50% of your vested account balance or $50,000, whichever is less. An exception to this limit is if 50% of the vested account balance is less than $10,000. In this case, you could borrow up to $10,000. However, your employer's plan may not include this exception.

Generally, the IRS requires you to repay your plan loan within 5 years, and make payments at least quarterly, but there are some exceptions. For example, you can request a loan extension if you’re using the money to buy a home that will be your primary residence.

Caution: If you don’t pay your loan back on time :

• You’ll reduce your retirement benefits because you can’t make up for what you borrowed through larger plan contributions later.
• You’ll have to pay income taxes on the amount you borrowed.
• You’ll have to pay a 10% penalty to the IRS if you’re younger than age 59½.

Before you borrow any money from your plan, ask your benefits/HR department or fund office:

• What would happen if you’re laid off or change jobs? (Some plans make you pay back your loan immediately.)
• Is it possible to get a loan extension if you have to take a leave of absence from your job or you’re called to active military duty?