One of the cheapest ways to borrow money is borrowing from your own 401k account.

Note that your employer /custodian controls the ability to borrow. Check with your own account to see the options.

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1:04 Fidelity Account Example
1:57 Principal Account Example
2:35 Summary and Final Thoughts

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Borrowing from your 401k can be a tricky task. However, it is not impossible to do. In this article, we will discuss two of the most popular 401k providers, Fidelity and Principal, and walk you through the step-by-step process of borrowing from your 401k.

Step 1: Check your 401k plan

The first step in borrowing from your 401k is to check your plan. You need to make sure that your 401k plan allows for loans. Not all plans permit loans, so it is essential to check with your service provider or plan administrator to determine whether loans are permitted, and if so, any specific rules or requirements that you must meet.

Step 2: Determine the amount you want to borrow

Now that you know you can borrow, it is time to determine how much you want to borrow. The IRS rules state that you can borrow up to 50% of your vested account balance or $50,000, whichever is less. You must also plan for a repayment plan.

Step 3: Apply for a loan

Once you’ve determined how much you would like to borrow, you need to apply for a loan. Fidelity and Principal have different lending options, so it’s essential to be familiar with their process. Go to their website and look for the loan application. Some plans may require that you fill out an application in person or through a phone call.

Step 4: Wait for approval

After submitting your application, you will need to wait for approval. Each provider has different processing times, so it is essential to check with them on the expected timeline of your loan application. If your application gets approved, you will get an offer letter that will specify the terms of your loan.

Step 5: Review the loan offer

It is necessary to review the loan offer carefully before proceeding. You want to make sure that you understand the terms and the repayment plan, including the interest rate, fees, and repayment schedule.

Step 6: Accept and sign the loan offer

If you are comfortable with the terms and the repayment plan, you need to accept and sign the loan offer. You can accept the offer from your online account or sign it and return it via mail.

Step 7: Wait for disbursement

Once you sign and accept the offer, you will wait for the disbursement of the loan funds. It would be best to anticipate that it could take up to ten business days for the funds to be transferred to your account.

Step 8: Follow the repayment schedule.

After you receive the loan, you need to start following the repayment schedule. You can usually set up automatic payments or make manual payments through your online account.

Conclusion

Borrowing from your 401k is a complicated process, and it is not something that you should take lightly. Always determine if borrowing makes good financial sense. If you do decide to borrow, make sure that you understand the terms, the repayment schedule, and the possible consequences if you cannot repay the loan. Make sure to check your plan rules and follow the steps outlined above to ensure a smooth transaction.