Top Frequently Asked Questions about 401(k) Plans

c) Loans and Rollovers

My spouse and I both contribute to a 401(k) plan and plan to borrow money from it to purchase our first home. Does it matter from which plan we borrow?

- There are 2 issues you should consider when choosing what plan to withdraw funds from. The first is either of you could change jobs during the loan repayment period. If either of you change jobs, you will have to repay the outstanding balance in a lump sum in order to avoid paying taxes. To best solve this problem, borrow a loan from the plan of the person who has the best chance to stay in the job longer.

- The other factor you should consider is your ability to handle the loan repayment terms, payment amount and frequency. If you have to cut back your contributions so as to be able to repay the loan amount, then it is probably not a good idea. Also because when you lower your contributions, you are also lowering your employer matched 401(k) contributions. You could borrow the loan from the spouse’s plan that has a lower employer matched contribution and put the rest of your contributions to that of the spouse who has higher employer match, so as to maximize the amount of “free money” you can get.

I have more than $80,000 in my 401(k) account. Can I transfer this much sum of money to an IRA even though it exceeds the IRA limit?

- The various IRA limits that apply to personal IRA contributions do not apply to rollovers from employer plans. Therefore, you can rollover the entire $80,000 to an IRA from an eligible employer sponsored plan such as a 401(k).

I am thinking of retirement and rolling my 401(k) to my IRA. My 401(k) account includes both pre-tax and after-tax contributions, which of these can I rollover?

- You can rollover the entire amount in your 401(k), including the pre-tax and after-tax contributions. This change was brought about in 2002 by a new 401(k) law known as the Economic Growth and Tax Relief Reconciliation Act of 2001.