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Is a 401(k) Loan in the Client's Best Interest?

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  • Additional Information
    • Abstract:
      There are at least 18 factors that need to be considered when deciding whether a client should take a 401(k) loan. Financial planners must carefully consider each of these issues in light of the client's unique circumstances. This article introduces a method for planners to use when approaching the plan-loan question. Any examination of the inquiry of which loan best suits the client's needs is aided by first understanding the rules governing plan loans. The considerations that compel a choice to use the 401(k) plan to provide the loan are investigated. Reasons a commercial loan may be advantageous are then considered. Finally, a deeper dive is taken to analyze the opportunity cost of having retirement funds "out of the market" when high returns occur; how the planner can avoid the repayment of a loan by reducing plan contributions and retirement readiness; and whether there is a double tax on loan repayments. The provided checklists can be used to guide planners through the decision process. [ABSTRACT FROM AUTHOR]
    • Abstract:
      Copyright of Journal of Financial Service Professionals is the property of Society of Financial Service Professionals and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)