Retirement Plan Participants’ Loans

August 1, 2012 at 6:25 pm Leave a comment

The Dayton Daily News has a well written article by Cornelius Frolik titled “Hurting Ohioans Turn to Pawn Shops, 401(k)s”. Located at http://www.daytondailynews.com/news/news/tough-economic-times-send-more-ohioans-to-savings-/nP7dK/, the article  cites research by the Investment Company Institute indicating that participants with plan loans have increased from 2006.  The article makes some excellent points regarding borrowing and repaying retirement plan loans.  As a reminder, if the participant has defaulted on a plan loan, that participant will have reduced funds set aside for retirement. Especially for older participants, retirement may be postponed due to the loss of compounded earnings and the resulting shorter time in which to make up the defaulted funds that were not repaid. As noted in the article, there are also tax consequences since the defaulted loan becomes taxable to the participant.  Participants should also keep in mind if they are using loans for daily expenses and will likely declare bankruptcy, that qualified retirement plan accounts are not available to creditors.

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Christine Gurney

A pension professional who shares her thoughts and ideas about the pension world for industry members and anyone else interested.

@ChristineGurney

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