How Many Loans Can You Have on a 403(b) Account?
Non-profit organizations can offer their employees participation in 403(b) retirement plans. Like 401(k) plans, the money is very difficult to access without leaving the job. However, you can take loans from the account in many cases for any reason. Knowing the loan limits will help you to make wiser financial decisions when tapping your 403(b) plan for cash before retirement.
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Size
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The IRS limits the loans you can take based on the amount borrowed rather than the number of loans. As of 2010, you can borrow up to $50,000 or 50 percent of your balance, whichever is smaller. For example, if your account only had $30,000, your loan limit would be $15,000. However, if your balance is below $20,000, a special exception applies: you can borrow up to the smaller of your loan balance or $10,000. For example, if you have a 403(b) plan balance of $14,000, you would be able to borrow $10,000.
Time Frame
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You must repay loans taken from your 403(b) plan over a five-year period in most cases. If you use the loan to buy a home, the repayment period is longer. As you repay your old loans, you can take out new loans as long as the total amount owed does not exceed the aggregate loan limits for 403(b) plans. Because 403(b) plan loans charge interest, you cannot simply borrow to pay off your previous 403(b) plan loans.
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Failure to Repay
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If you fail to repay your 403(b) plan loan as specified in the terms of the loan, the IRS will treat it as a distribution from your 403(b) plan. If you are not at least 59½ years old, this amount will become an early distribution, which results in income taxes plus a 10 percent early withdrawal tax penalty. Worse, if you leave your job, you must pay the entire balance of the loan within 30 days.
Caution
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The IRS does not require 403(b) plans to offer loans to plan participants. This means that some 403(b) plans may not allow you to take a loan for any purpose. Before counting on taking a loan, check your plan documents or contact your plan administrator to verify that your plan will let you borrow from it.
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