I have a question on the topic which you may be able to answer. I understand a 401k loan would need to be paid back within a short time period if your employment ended. Otherwise it will be documented as a distribution. What would happen if you face this circumstance over the age of 55 and cannot pay it back within the time requirement? There is an IRS 'Rule of 55' provision which eliminates the 10% penalty on 401k distributions. Would the 'Rule of 55' provision not protect the loan distribution from penalty?
Thanks for the question @casa87blue. First, Fidelity does not provide tax advice so we suggest speaking with a licensed tax advisor regarding your specific situation. While not all plans offer this, the Rule of 55 applies to distributions made to after you have separated from service with your employer once reaching age 55. You can read more on the IRS website.
@danielledrennen4568 // It really hurts your compounding interest. Especially if you borrow a lot of money. I really should not have said "never " it is better then filing for bankruptcy.
@@danielledrennen4568 because time is your friend when it comes to seeing the benefit of money compounding, the growth is exponential and grows more rapidly when your balance is high
@@danielledrennen4568 What I have read about it is because the money you took will not be collecting the compound interests for the time you will be repaying it. Let's say, you took with an interest of 9% however the SP500 grew 30% during that period, so you will "loose money" .
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I have a question on the topic which you may be able to answer. I understand a 401k loan would need to be paid back within a short time period if your employment ended. Otherwise it will be documented as a distribution. What would happen if you face this circumstance over the age of 55 and cannot pay it back within the time requirement? There is an IRS 'Rule of 55' provision which eliminates the 10% penalty on 401k distributions. Would the 'Rule of 55' provision not protect the loan distribution from penalty?
Thanks for the question @casa87blue. First, Fidelity does not provide tax advice so we suggest speaking with a licensed tax advisor regarding your specific situation.
While not all plans offer this, the Rule of 55 applies to distributions made to after you have separated from service with your employer once reaching age 55. You can read more on the IRS website.
Never take a 401k loan . Never . It will hurt you in the long run . 😢
Why do you say this, if you don't mind my asking?
@danielledrennen4568 // It really hurts your compounding interest. Especially if you borrow a lot of money. I really should not have said "never " it is better then filing for bankruptcy.
@@danielledrennen4568 because time is your friend when it comes to seeing the benefit of money compounding, the growth is exponential and grows more rapidly when your balance is high
@@danielledrennen4568 /// It will hurt your compounding . ( ex: making interest on interest and dividends )
@@danielledrennen4568 What I have read about it is because the money you took will not be collecting the compound interests for the time you will be repaying it. Let's say, you took with an interest of 9% however the SP500 grew 30% during that period, so you will "loose money" .