How do you borrow out of your 401k if it's in stocks and bonds?

Question

My boyfriend had a job the year before where he had a 401k that he put into stocks and bonds. He doesn't work there now. Could he borrow some money out, if so, how?

Answer 1

1. Tell boyfreend tu TRANSFER 401k tu IRA.

Answer 2

You may only borrow against a 401(k) or other qualified retirement plan if you are still working for the employer that is providing the plan.  This is done by contacting the plan administrator and setting up a loan.

In your boyfriend's case, he no longer works for the employer through which he participated in the 401(k); however, there may be another way to allow him to borrow against the balance in his 401(k).  If his current employer has a 401(k) plan, AND if he is eligible to participate, AND if the new employer's plan allows transfer from a former employer's plan, AND the new employer allows loans against their 401(k)s, your boyfriend is in luck!

Sounds like a lot of "ifs" that last sentence, but it is not uncommon for plans to allow both transfers and loans.  If that's the case at his current employer, it's a simple matter of setting up a 401(k) at his new employer and requesting a "rollover" from his old one (make sure he does NOT request a straight withdrawal from the old plan, or he'll have to pay taxes and a penalty).  The last step is for him to apply for a 401(k) loan through his current employer.

Most plans require loan payments to be made by payroll deduction.  If this works out, it's not a bad idea to start making contributions to the 401(k) in the same amount as the loan payments, once the loan is paid off.  Always pay YOURSELF first!

Also, beware if anyone advises your boyfriend to transfer or "rollover" his 401(k) into an Individual Retirement Account (IRA).  Loans against IRAs are specifically NOT allowed; the tax code is extremely clear about this!