401K

L1: 401KHi Guys,
Sorry to bother you with this but I need a quick answer.
A freind of mine took money out of her employer matched 401K to buy carpet. She repaid it 2 years later. The employer charged her $100 for the loan.
I am afraid she might be headed for IRS trouble.
Am I correct that this money should have been repaid in 60 days to avoid penalty?
Regards
Bob
2005-02-08 21:07, By: Bob, IP: [64.12.116.202]

L2: 401KBob,
I won’tclaim to be an expert, but I don’t think there is any problem here. It is very common to take loans out against a 401K, and for a number of years. Specifics depend on the rules ofeach employer’s 401K plan. Only if the loan isn’t repaid is it considered a withdrawal with tax (and penalty) implications.
Withdrawing funds from an IRA would be a whole different story and that I think is where your concern about 60 days originates, because that is the time limit for a rollover.
Stan2005-02-09 00:42, By: Stan, IP: [68.93.245.111]

L2: 401KGood morning Bob:
I agree with Stan that there’s no problem with the two years payback of the K-plan loan. In fact, unless the plan document directs otherwise, your friend had 5 years to pay back the loan. The 60-day rule deals with taking ‘constructive receipt’ of money from an IRA, 401(k), etc, and putting it (all of it) into another such plan without creating a tax liability. I did a search and found an article which seems pretty good talking about these loans.
http://moneycentral.msn.com/articles/retire/basics/4714.asp
Loans from qualified plans are available but there are some really strong drawbacks to using them, and the ‘Cons’ in the above article does a good job describing them. I hate these loans because of the lost earnings and how much of a negative impact it has on future retirement income. With interest rates as low as they have been in the last few years, I feel that borrowing from your future retirement income should only be used in a dire situation.
Jim2005-02-09 08:06, By: Jim, IP: [70.184.1.35]