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Loans and Withdrawals from 401k and Defined Contribution Pension Plans
Old 09-11-2011, 10:31 PM   #1
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Loans and Withdrawals from 401k and Defined Contribution Pension Plans

Hi. I work for an employer that has a 401k and a defined contribution pension plan. Loans and withdrawals are available within the 401k plan. I am trying to figure out when, if ever, it would make sense to use a loan or take a withdrawal from the 401k plan. The only reason I could think of is if the employer did not offer good investments within its 401k, then you could transfer some of the money into your own IRA.

Also, I don't think I can loan or withdrawal from the defined benefit pension plan, does that sound right to you?

If you use a loan from the 401k to purchase a primary residence, I don't think the interest on that loan is tax deductible, so that doesn't sound so good.

I am including some information from the employer's benefit website below. I appreciate your advice.

Thinking About Taking Your Money Out of the Plan?
You can see how much is available for a loan or withdrawal and what happens if you take money out.
Loans Available
Savings and Investment Plan (SIP)- 401k plan
General Purpose $50,000.00
Must be repaid within 5 years.
Primary Residence $50,000.00
Primary Residence
You can take a primary residence loan to purchase a primary residence for yourself. Your primary residence can be a house, condominium, co-op, mobile home, or a new home constructed by a builder or yourself. You must repay the loan within 15 years

Withdrawals Available
Savings and Investment Plan (SIP)- 401k plan
In-Service Withdrawal Without Suspension $x,xxx.xx
You can take money out of the plan for any reason. You can roll over the withdrawal to another eligible retirement plan or individual retirement account (IRA). Suspension means the employer stops its contribution into the 401k for a six month period, I believe.
In-Service Withdrawal With Suspension $xx,xxx.xx
You can take money out of the plan for any reason. You can roll over the withdrawal to another eligible retirement plan or individual retirement account (IRA)
Hardship Withdrawal $xx,xxx.xx
Fixed Income Hardship Withdrawal $x,xxx.xx
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