About the Guest(s):

Kerrie Beene is a certified financial planner and the Chief Investment Officer at Rooted Planning Group. With years of experience in the financial industry, Kerrie has helped numerous clients navigate their financial journeys and make informed decisions about their investments. She specializes in retirement planning and is passionate about helping individuals achieve their long-term financial goals.

Episode Summary:

In this episode of Money Roots, Kerrie Beene, a certified financial planner, explores the topic of 401K loans and the tax implications associated with them. She discusses how 401K loans work, the rules set by the Internal Revenue Service (IRS), and the importance of understanding your employer's specific rules. Kerrie highlights key considerations such as loan limits, repayment periods, interest rates, loan purposes, and employment status. She also emphasizes the tax implications of 401K loans, including potential income tax and withdrawal penalties. Kerrie advises listeners to explore alternative options before taking out a 401K loan and to consult with a financial advisor to ensure alignment with long-term financial goals.

Key Takeaways:

• 401K loans are available to anyone with a 401K account and have a simpler and quicker application process compared to traditional loans.
• The IRS sets limits on how much you can borrow from your 401K, generally up to 50% of your vested account balance or $50,000, whichever is less.
• Repayment periods for 401K loans are typically within five years, although longer periods may be allowed for loans used to purchase a primary residence.
• The interest rate on a 401K loan is often based on the prime rate plus an additional percentage determined by your plan. However, the interest paid is not tax deductible.
• Some plans may have restrictions on the type of expenses for which you can borrow from a 401K loan, so it's important to check with your employer.
• If you leave your job, the outstanding balance of the loan may become due immediately, potentially subjecting it to taxes and penalties.
• Failure to repay the loan according to the terms outlined in your plan could be considered a distribution, resulting in income tax and a potential 10% withdrawal penalty.
• Administrative fees may be charged for processing and maintaining the loan, which are typically deducted from your account balance.
• Taking out a 401K loan means missing out on potential growth in your retirement savings, so it's crucial to consider the long-term impact on your financial plan.

Notable Quotes:

1. "While you are repaying yourself, that money did become uninvested, and you will be investing it later, but you are missing out on that growth there." - Kerrie Beene
2. "If you decide to take out a 401K loan, make sure you only borrow what you need and have a solid plan in place to repay it promptly." - Kerrie Beene

Resources:

• Rooted Planning Group

Listen to the full episode of Money Roots to gain a comprehensive understanding of 401K loans and their tax implications. Stay tuned for more insightful episodes from the podcast to enhance your financial knowledge and make informed decisions.