Though this does depend on the type of payment plan you have, usually it takes about 5-7 banking days for the loan to register in your bank account.
The purpose of the 401k plan is to provide money for you once you have retired. However, there does come a time when money is needed for living, this could be because of college fees for children, medical expenses or the, purchase of a primary home. This is why the government has allowed people to tap into these savings and extract a portion in the form of a loan, to smooth the path of a period of financial difficulty. It must be noted that all 401k hardship withdrawals are subject to a 10 per cent tax, this taxation can also cause you to forgo the tax deferred growth system that could have been generated by those assets.
So even though you are effectively borrowing form yourself, when it comes to repaying the loan, which has to be dome within a 60 month period, you are still expected to pay interest. Most plans set the standard interest rate at prime plus an additional one or two percent. There are two main benefits to this. Firstly, unlike interest paid to a bank, you will eventually get this money back in the form of qualified disbursements at or near retirement. Also, the interest you pay back into your 401k plan is tax-sheltered.
It is advised that the 401k loan should be regarded as a last resort, and it would be advisable to seek other options before resorting to this.
The purpose of the 401k plan is to provide money for you once you have retired. However, there does come a time when money is needed for living, this could be because of college fees for children, medical expenses or the, purchase of a primary home. This is why the government has allowed people to tap into these savings and extract a portion in the form of a loan, to smooth the path of a period of financial difficulty. It must be noted that all 401k hardship withdrawals are subject to a 10 per cent tax, this taxation can also cause you to forgo the tax deferred growth system that could have been generated by those assets.
So even though you are effectively borrowing form yourself, when it comes to repaying the loan, which has to be dome within a 60 month period, you are still expected to pay interest. Most plans set the standard interest rate at prime plus an additional one or two percent. There are two main benefits to this. Firstly, unlike interest paid to a bank, you will eventually get this money back in the form of qualified disbursements at or near retirement. Also, the interest you pay back into your 401k plan is tax-sheltered.
It is advised that the 401k loan should be regarded as a last resort, and it would be advisable to seek other options before resorting to this.
