Can I Borrow From My 401(k) If I Am Already Retired?


The IRS permits loans from some employer-sponsored retirement plans, such as the 401k. However, other retirement plans, such as an individual retirement account (IRA), don't allow loans. If you are retired but still maintain your 401k plan with your former employer, you cannot take a loan unless you are working with the employer part-time.

IRS Regulations

The IRS states that a plan participant can take up to $50,000 in a loan against the 401k plan as long as no more than 50 percent of the 401k vested balance is borrowed. Vested balance refers to the balance the participant owns; some employer contributions might not be the employee's until a designated number of service years are completed. The loan must be paid back within five year via payroll deductions. Interest rate is based on prime rate -- typically set a littler higher than the prime rate at the time -- and requires no credit check to obtain.

Payroll Deductions

The payroll deduction of repayment is the key factor for when you consider borrowing money from a 401k plan. If you have a 401k loan and lose your job for any reason, the loan balance is demanded in full; otherwise the amount of the outstanding loan is considered a distribution. Being retired, you don't have a paycheck from which loan payments can be taken. You might still be doing part-time work for the company and be retired. This isn't a true retirement but is still a common occurrence. If you are still working for the company, the loan value will be based on the income you make and your ability to make the payments.

Working Somewhere Else

If you are no longer working for the employer that holds your 401k and are working part-time for a different company in retirement, you may be able to obtain a loan. Ask the human resources director at the new company whether it has a 401k plan and whether it will accept a rollover from another 401k plan and whether loans are allowed. If all those things are possible, move the assets into the new plan with a rollover and file the loan paperwork with the new company. Again, this option is available for someone who is retired but still working for whatever reason.

Not Working at All

If you are retired with no source of income, taking a 401k loan is not feasible. However, you are able to take distributions without penalty if you are over age 59 1/2. The distribution is not penalized, but is added to annual income when filing taxes. Unlike a loan from your 401k, a distribution does not allow you to return the money to the tax-deferred structure. However, if you need the money, it may be your only option.

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