Closing a 401K account while you have a loan

mirwin99 · #1 Sep 17, 2007, 08:20 PM

Does anyone know if you can close a 401K account with an employer while you have a loan that you are paying back? I am in serious need of money and that is the only option I can think of. Any help would be appreciated!

ebaines · Sep 18, 2007, 01:15 PM

I believe by law you can only borrow up to 50% of the value of your 401(k), so no, you can't take out a loan and then withdraw the remainder of your balance. I believe what would happen is the loan would no longer be considered a loan but would be redefined as a premature withdrawal, which would generate the 10% early withdrawal penalty plus income taxes owed.



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