401(k) loans are taking a toll on retirement savings! Americans using retirement savings to get them through difficult times is nothing new. And, there are some underlying rules of which plan participants and plan sponsors should be aware.
According to a recent Study by Empower, the number of participants taking out 401(k) loans increased by 13 percent over the past 12 months! At the same time, hardship withdrawals jumped by 24 percent. And another startling finding revealed that over 25% of surveyed respondents indicated that they are very likely or somewhat likely to take 401(k) loans or hardship withdrawal in the next six months!
Many 401(k) plans do permit 401(k) loans. Some permit more than a single loan at a time. Among 401(k) plans which permit loans, it is common practice for a plan to permit the plan participant to “borrow” up to 50% of the account balance, up to an amount of $50,000. A major drawback, which looms over anyone who chooses to borrow from their 401(k) plan, is the concern of separation of service from their employer. In those cases, a borrower may be required to pay back the loan in a timely manner.
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