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If you need cash and are wondering how you will pay for specific expenses, you may be taking a closer look at your retirement funds and wondering if you should move forward with the option to borrow this money. This is often a preferred option over simply taking the funds out of the account altogether with no intention to repay them. With a closer look at the steps it takes to borrow the funds, you may be able to make a more informed decision about whether this is an option that you want to move forward with.
Explore the Options
When you are thinking about borrowing from your retirement funds to pay for specific expenses in your life, you may have a definite amount of money in mind that you want to borrow. Each fund plan is different with regards to the amount of money that can be borrowed. For example, it is common for individuals to be permitted to borrow only 50 percent or less of the funds available. It is important to compare the options against your needs to determine which ones may be most feasible for you. It is also important that you explore other options outside of your retirement account, such as a home equity loan, before you tap into your retirement account for the money that you need.
Research the Repayment Terms
When you borrow against your retirement funds, you will need to follow strict rules regarding repayment if you want to avoid being hit with a hefty tax penalty for early withdrawal of the funds. Each plan will have unique repayment terms, such as an interest rate and a loan term. Explore the monthly payment options to make sure that the loan will be affordable for you. If not, you may consider a straight withdrawal from the funds and take the tax hit rather than stress about trying to make payments that are not affordable for you.
Work With Your Plan Facilitator
After you have made the final decision about which type of loan you want to move forward with, you can work with your plan facilitator to set up the loan. Generally, there is not a loan application, and the funds are available for you to borrow against through a simple phone call to initiate the process. There may be a waiting period for the processing of the check or wire to you, but you typically can expect to receive the funds within a few days to a week. Your plan facilitator will provide you with more information regarding the actual time period for the repayment of your loan.
Borrowing against a retirement account may be the best available option for you, and it could provide you with the money you seek with competitive loan terms. Furthermore, the lack of a formal loan application process and the ability to get your money quickly makes this an attractive option. If you do decide to borrow retirement funds, ensure that you follow all rules regarding repayment so that you do not have to pay taxes on the money borrowed and so that you can repay the money into your retirement account for your future use in your retired years.
By Andre Bradley