Rollover 401k - Can I take a loan from it?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
stockrex
Posts: 65
Joined: Sat Mar 09, 2019 6:28 pm

Rollover 401k - Can I take a loan from it?

Post by stockrex » Sat Mar 09, 2019 6:36 pm

Hello from west michigan,

First time poster with a question:

I have a rollover 401k from my previous job, it is with TDAmeritrade.

Am I able to a loan from this rollover 401k?
I have $110k and I want to take the max possible of $50k.

johnny
Posts: 35
Joined: Fri Dec 07, 2018 9:31 am

Re: Rollover 401k - Can I take a loan from it?

Post by johnny » Sat Mar 09, 2019 9:20 pm

You need to read the summary plan description, but I would suspect that your ability to get a loan went away when you left your employer. You can however roll the funds to an IRA and there are some ways to make withdrawals, especially for a number of hardship reasons.

You might want to check out the wiki re: withdrawals:

https://www.bogleheads.org/wiki/Outline ... ment_plans

delamer
Posts: 9267
Joined: Tue Feb 08, 2011 6:13 pm

Re: Rollover 401k - Can I take a loan from it?

Post by delamer » Sun Mar 10, 2019 12:33 am

When you say “rollover 401(k)” do you mean that you rolled your 401(k) into an IRA?

If so, there is no way to take out a loan.

Topic Author
stockrex
Posts: 65
Joined: Sat Mar 09, 2019 6:28 pm

Re: Rollover 401k - Can I take a loan from it?

Post by stockrex » Sun Mar 10, 2019 8:25 am

Thanks, yes, it was rolled over to an IRA.
IRA = no loans, bummer.

PaunchyPirate
Posts: 124
Joined: Sun Nov 30, 2014 7:58 pm

Re: Rollover 401k - Can I take a loan from it?

Post by PaunchyPirate » Sun Mar 10, 2019 11:29 am

stockrex wrote:
Sun Mar 10, 2019 8:25 am
Thanks, yes, it was rolled over to an IRA.
IRA = no loans, bummer.
Once a 401k is rolled over to an IRA, it is no longer a 401k (and 401k rules no longer apply). It is now considered an IRA. Some places/people call it a Rollover IRA.

Topic Author
stockrex
Posts: 65
Joined: Sat Mar 09, 2019 6:28 pm

Re: Rollover 401k - Can I take a loan from it?

Post by stockrex » Tue Mar 12, 2019 2:50 pm

Kinda weird rule, it is my money, so it does not make sense why I could not loan it out from an IRA.

User avatar
cheese_breath
Posts: 8964
Joined: Wed Sep 14, 2011 7:08 pm

Re: Rollover 401k - Can I take a loan from it?

Post by cheese_breath » Tue Mar 12, 2019 3:34 pm

stockrex wrote:
Tue Mar 12, 2019 2:50 pm
Kinda weird rule, it is my money, so it does not make sense why I could not loan it out from an IRA.
"It's my money, and I want it now." :happy :dollar

I think it's to protect us from ourselves. As I seem to recall the rules were intentionally written to make it hard to get our money out before retirement so we wouldn't blow it before then.
The surest way to know the future is when it becomes the past.

User avatar
Nate79
Posts: 5170
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Rollover 401k - Can I take a loan from it?

Post by Nate79 » Tue Mar 12, 2019 3:38 pm

stockrex wrote:
Tue Mar 12, 2019 2:50 pm
Kinda weird rule, it is my money, so it does not make sense why I could not loan it out from an IRA.
Why would you think loans from IRAs are allowed? It's your money and you can take it out any time you want.

clydewolf
Posts: 745
Joined: Tue Jul 21, 2015 12:51 pm

Re: Rollover 401k - Can I take a loan from it?

Post by clydewolf » Tue Mar 12, 2019 6:18 pm

stockrex wrote:
Tue Mar 12, 2019 2:50 pm
Kinda weird rule, it is my money, so it does not make sense why I could not loan it out from an IRA.
You can take your money from your IRA any time you want. If your contributions were tax deductible (tax deferred), you will need to pay the income tax when the money is distributed to you. If you have not reached age 59-1/2, an additional 10% penalty is applied. As another poster stated, this is to protect us from ourselves.

Listed in IRS Pub 590-B are some exceptions to the 10% penalty perhaps one of these will apply to you. See the exceptions on page 22 here: https://www.irs.gov/pub/irs-pdf/p590b.pdf

Whatever your reason for taking a distribution, generally the distribution can not be paid back to the IRA. But there are some exceptions to that too.

Alan S.
Posts: 8677
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Rollover 401k - Can I take a loan from it?

Post by Alan S. » Tue Mar 12, 2019 7:54 pm

The term "IRA loan" usually describes a 60 day rollover where you can use the money for anything, but if you do not roll the funds back within 60 days of receipt, the distribution will be permanent, taxable, and usually subject to penalty.

People were abusing these rollovers, often setting up several IRA accounts since a rollover each year was allowed by the IRS for each account. With 6 IRA accounts, you could have a constant outstanding rollover amount. Starting in 2015 the IRS decided to treat all IRA accounts including Roth IRAs as one large account, therefore there was only one 60 day rollover allowed per 12 months in total for all your accounts.

While you still have the one rollover available, it is wise to preserve if for emergencies. If you use your one rollover now, then you are shut out of the rollover option for the next 12 months. Therefore, unless you actually need to use the funds for up to 60 days, it is best to move all IRA funds by direct transfer. These are unlimited in number, but you don't get to use the funds.

Finally, the adjective "rollover" before an account always refer to the present account, not the source for that account. A "rollover IRA" refers to an IRA funded entirely by a rollover from a qualified plan. There is no such account as a "rollover 401k" in common usage, since a 401k typically is receiving it's own contributions and would not hold only a rollover from another 401k for any length of time. Finally, no one uses the term "rollover Roth IRA" even though a Roth IRA could be funded exclusively by a direct rollover from a Roth 401k. Therefore a "rollover Roth IRA" actually exists, but the moniker has never caught on.

rgs92
Posts: 2440
Joined: Mon Mar 02, 2009 8:00 pm

Re: Rollover 401k - Can I take a loan from it?

Post by rgs92 » Tue Mar 12, 2019 8:08 pm

A rollover-IRA account which receives funds from a 401K is different from a 401K. A main characteristic is that you cannot contribute to it with anything but a further rollover from an existing 401K account.
(Whereas any other sort of IRA account can receive contributions from any plain source of funds.)

So a Rollover IRA account is semi-frozen, and you can withdraw from it (suffering any tax/penalty consequences) but you cannot borrow from it.
So it is certainly your money, and you can take money from it because of this, but that's the only way to get money out of it.

The 401K loan thing was something set up specifically for live/active 401Ks where you are currently contributing to it.
In fact, I'm pretty sure if you have a leftover inactive 401K from a job you are no longer at, you can't take a new loan from it.

Some employers force you to pay back a 401K loan in full if you leave the job and have an outstanding loan, but some allow you to continue making payments as scheduled even if you leave the job. (I had this happen to me once, so the IRS must allow it.)

Topic Author
stockrex
Posts: 65
Joined: Sat Mar 09, 2019 6:28 pm

Re: Rollover 401k - Can I take a loan from it?

Post by stockrex » Thu Mar 14, 2019 7:56 am

Alan S. wrote:
Tue Mar 12, 2019 7:54 pm


While you still have the one rollover available, it is wise to preserve if for emergencies. If you use your one rollover now, then you are shut out of the rollover option for the next 12 months. Therefore, unless you actually need to use the funds for up to 60 days, it is best to move all IRA funds by direct transfer. These are unlimited in number, but you don't get to use the funds.
Alan,
This is a timing thing I have encountered, I did not plan on landing myself in this position. My HELOC has been approved but it will take another 2 weeks.

I have excess contributions in my Self IRAs I believe, but I do not see any need for a $$$ in the next 12 months after this as I plan on doing a cash out refi on my primary residence which should give me some liquidity.

So do I just call Schwab and ask for the $$$

--------------
Gotcha, active 401k can be loaned from, and with the new rules, one has to pay it back as soon as they leave the job. Yikes.

Cheese - I still don't follow the feds trying to protect us, let's see if I miss a mortgage payment, hmm the harm to my credit will cost me dearly in the near term.
So taking out 5k in loans which would solve the issue for me would protect me. I don't know, it seems more to force me to keep my $$$ with Schwab :confused

User avatar
cheese_breath
Posts: 8964
Joined: Wed Sep 14, 2011 7:08 pm

Re: Rollover 401k - Can I take a loan from it?

Post by cheese_breath » Thu Mar 14, 2019 2:52 pm

stockrex wrote:
Thu Mar 14, 2019 7:56 am
... Cheese - I still don't follow the feds trying to protect us...
The middle word in IRA is Retirement. IRA's were created to help and encourage people to save for their retirement. But our wise leaders in Washington feared some less responsible folks might use them like piggy banks, withdrawing whatever they wanted whenever the fancy struck them, and end up with nothing for their retirements. So they included rules to discourage this... i.e. to protect them from themselves.
The surest way to know the future is when it becomes the past.

Post Reply