How to Correctly Borrow From Your 401k
Get Your QRP Loan Kit
The borrowing procedure for your Individual 401(k) is detailed in the QRP Kit, which can be found in the packet that we provide you. This section provides detailed descriptions of how to handle the loan and how to pay it back.
The first thing to do is fill out the Credit Application. In the Instructions page of the Advance Kit, it tells you that your plan administrator or trustee must review and approve the loan application. If Sunwest Trust is your trustee/plan administrator, fax or email the form to us to review. If you are your own trustee, please review the rules on page 2 of the instructions very carefully to make sure that you remain within the guidelines of your plan.
You don’t need to qualify through a credit check, and you don’t have to tell anybody why you are borrowing the money. It’s true that you pay interest to yourself and that 9% rate sure looks attractive to receive the interest in your 401(k) account. www.usatoday.com.
OK – Now my loan has been accepted
Once your application has been accepted, you will need to fill out the borrower Agreement. By signing this document, you agree to the terms of the loan. Please review this document and make sure that you understand everything. Once both of these documents have been filled out, you may receive the extension. If Sunwest is your plan administrator, we will mail you a check.
Stay within the guidelines of your loan agreement
Make sure that you abide by all the terms of the agreed plan or else you may be deemed in default. If your extension is deemed in default, the entire amount will be considered a distribution, for which you will be taxed and possibly penalized.
If you have any questions, be sure to speak with your CPA or tax professional.