- 1). Check the balance of your 401k to determine whether you should borrow from it. With most 401k loans, you can borrow up to 50 percent of the balance of your account. If you need more than 50 percent of the value of your 401k, it is not worthwhile to proceed with the loan.
- 2). Contact your 401k provider and inquire about taking out a 401k loan. Usually, the company has a simple procedure for processing the 401k loan. You may be able to download a form from the company website, or you may need the company to send you a form by mail or by fax.
- 3). Complete the forms for the 401k loan. The forms generally require basic personal information. You also must provide information about the loan, such as the amount of money you want to borrow and the length of time you will have to repay it. Some 401k loans have flexible terms that offer a choice of loan terms.
- 4). Receive the money from the 401k, and begin the process of repaying the loan. The 401k provider typically issues a check for the amount of the loan. If you do not repay the loan, the unpaid balance counts as a taxable distribution, and you must pay a 10 percent early distribution penalty on the amount.
- 5). Consider the option of a 401k hardship withdrawal if 401k loans are not available to you. Some situations justify taking money out of your 401k despite the penalty you incur. Paying for the final expenses after the death of a loved one or the purchase of a primary residence may be worth the extra cost. With a hardship withdrawal, you can take out exactly the amount you need for the financial hardship. The money you take out is taxable, and you also have to pay a 10 percent early distribution penalty.
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