401(k) loans

• Employees can borrow loans from their 401(k) account balance.

Employees’ 401(k) plans may allow them to borrow from their account balances. However, employees should consider a few things before taking a loan from their 401(k)s.

If the employee doesn’t repay the loan, including interest, according to the loan’s terms, any unpaid amounts become a plan distribution to them. The plan may even require employees to repay the loan in full if they leave their jobs.

Generally, employees have to include any previously untaxed amounts of the distribution in their gross incomes in the year in which the distributions occur. An employee may also have to pay an additional 10 percent tax on the amount of the taxable distribution, unless the employee:

• is at least age 59 �, or
• qualifies for another exception.

Any unpaid loan amount also means the employee will have less money saved for retirement.