Every plan is different and is governed by the plan document. You can get a copy from your benefits administrator, your H/R department, and/or the custodian. Most plans allow you to borrow up to 50% of the amount in your account up to a maximum of $50k. Some plans allow multiple loans, however, the total that can be borrowed cannot exceed these limits across all loans. Generally speaking the APR will be about 1% over prime rate and must be paid through payroll deductions.
You may not be able to borrow from your 401(k) if you are no longer employed by the company sponsoring the plan. The loan must be paid back in-full within 5 years and usually within 60 days of leaving your employer.
There are a host of other rules and things to consider… suggest you discuss your options with a fee-only advisor.
Warmest regards John Essigman www.bluecreek.net
Phillip, I could ask pertinent questions like, "how old are you" and provide various scenarios here to answer your question, but that wouldn't be efficient. The quick response is, call your benefits officer at your employer, usually in the Human Resources department, and ask them. That advice, however, seems hollow.
I wouldn't be good at what I do if I didn't ask questions about why you need the money? Depending on your needs, maybe there are other better, less expensive alternatives. I say less expensive because, although there may not be an actual fee for removing some of your 401K, there would be a reduction in the amount of money you have invested, thus reducing possible gains, in a currently upward market. You only have so much time to build a retirement portfolio.
Maybe you are renting, and have found a great deal on a house you'd like to take advantage of. Then I would respectfully offer my blessing. Four main 'monetary' reasons support my thinking; Housing prices will go up which increase your investment, you need to live somewhere, Interest rates are low, and I'll take buying over Renting any day. Not only does buying over renting make money sense, but it gives a person pride, and personal self worth, and gratification. These are aspects many Financial Advisors over look, but are extremely important.
I would first deal with the question, why do you want to borrow from your 401(k)? This is usually a bad idea and should be tempered by the opportunity costs and risks. You should meet with an expert who you trust to reveal sufficient information to give you a holistic view on the impact of this action. Your age, budget, time horizon, 401(k) custodial provisions, purpose of the loan, etc . all need to be explicit.
Your human resources department and the plan administrator will be able to walk you through this process. They should be able to provide a website and log in to your plan's website as well. Here you should be able to model a loan with the amounts available, payback period, and payment amounts.
Most plans allow you to borrow up to 50% of the amount in your account up to a maximum of $50,000. Some plans allow multiple loans, as many as three, however, the total that can be borrowed cannot exceed these limits across all loans. The current interest rate that I am seeing on my plans is 4.25%
If you are going to utilize a loan, I usually suggest to ask for the minimum amount that you need. Do not borrow more just because it is an easy process. Please weigh the pros and cons before you proceed.
If I were your dad, I'd say, "$0." Borrowing from a 401k hurts your retirement savings and few people have money to spare there. Most companies would do their employees a favor by prohibiting loans and some do.
The three things people do most to hurt themselves financially are 1) buying too much house on too long a mortgage, 2) buying and selling their cars too early and paying hundreds of dollars a month on car payments, 3) spending their retirement accounts when they get a check upon leaving a company or want to borrow for something.
That may sound hard-nosed, but it's the truth. Debt is your enemy, not your friend.