403b Loan Terms
|If you are working for a tax exempt organization, it is quite possible that you using a 403b plan to save money for retirement. Did you know it is possible to get a loan from your 403b retirement plan? However, this is only possible under certain conditions.
If you want a loan from your 403b retirement savings plan, you will have work closely with your plan administrator so that the loan amount is not seen as early distribution of your retirement funds. If the loan is taken as early distribution, you will have to pay a 10 percent penalty. This is especially true if you are under the age of 59 1/2 years.
403b Loan Terms And Rules:
Before you apply for a loan on your 403b plan, make sure that the plan allows you take loan because there are certain plans which do not allow for loans. However, you have to follow the 403b loan terms carefully so that you are not penalized for early withdrawal.
- The limit on the loan amount at any given point cannot exceed $50,000.
- You must make payments on your loan amount quarterly, to say the least.
- It is quite possible that your loan agreement may have a provision for a 3-month grace period. Certain agreements also have provisions to suspend payments if the borrower is going for military service. This suspension is only until the military service lasts.
- The term for a 403b loan cannot be more than 5 years. If you want it for a longer duration, you will have to use the money to purchase your primary residence.
- In addition, any loan taken on a 403b retirement savings plan should have a reasonable rate of interest.
Do bear in mind that if you default on the loan or fail to repay the loan amount, the IRS will treat the entire loan amount as early withdrawal and you will have to pay a penalty of 10 percent on the entire loan amount.
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