Financial Advisor Chula Vista

The White Paper You MUST Read!

Borrowing and Withdrawing Retirement Funds, PART 1

When facing the choice of whether to take money from your retirement fund before you retire, LPL financial advisors urge Chula Vista residents to make sure that they know the penalties and consequences for their taxes and financial plan.

After committing to building your retirement savings, the last thing you want to do is have to deplete them to meet a different expense. However, there may come a time when your best or only financial option is to turn to your retirement plan for a loan or a hardship withdrawal. By doing this, you diminish your retirement funds, but it may allow you to reduce your debt or pay for an urgent expense, such as a medical or educational bill.

“Learn when you are able to borrow or withdraw money from your retirement plan and the implications for your taxes and financial plan if you do so,” say JKL Wealth Management’s LPL financial advisors.

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Financial Advice for Chula Vista: Loans

Just as with any other type of loan, a loan from your retirement plan is an amount you borrow and then pay back with interest. Both the amount you borrow and the interest will go back into your retirement account upon repayment, and these types of loans are often repaid directly out of your paycheck. Since you are planning to pay back the loan, unlike a straight withdrawal, you know that your retirement account will eventually be restored by the amount you borrow, and this promissory payment has a guaranteed rate of return. However, keep in mind that, while making loan payments, you may not be able to make contributions to your retirement account at the same level you were prior to taking out your loan.

Plan Eligibility for Loans

“According to the IRS, you may take loans from “qualified plans,” including 401(k)s, certain types of annuity plans, including 403(b)s and also from governmental retirement plans,” explains our Chula Vista LPL financial advisor, John Lohrenz. “Although these types of plans may offer you the option to take out a loan, they aren’t required to.”

To see if your plan gives you this option, check the plan documents you received when you enrolled or check with your plan administrator. You cannot take a loan from an IRA; if you do so, the IRA will no longer qualify as an IRA, and it will become part of your taxable income.

Loan Restrictions

Unlike a withdrawal, Chula Vista residents do not need to prove financial hardship to take out a loan from their retirement plans. These types of loans generally don’t require a lot of paperwork, although you will have to sign a repayment agreement specifying the number, amount and due dates of loan payments. The specific terms of this agreement will be set up by your plan sponsor and/or employer.

However, there are some restrictions on these types of loans. You may only borrow the lesser of (1) $10,000 or 50 percent of your vested balance of the account, whichever is greater or (2) $50,000. These restrictions apply to the total of all your outstanding loan balances per retirement account.

In addition, loans from your retirement plan must be paid back within five years, or within 10 years for loans related to buying a home, and these payments are generally required on at least a quarterly basis. Finally, when borrowing from an employer-based plan, the loan’s terms are contingent on your continued employment with that employer. If you lose or change your job, you will have to pay the outstanding balance within 60 days or face the penalties that come with failing to repay.

To Read On:

Click on the links below to read more about the in’s and out’s of borrowing and withdrawing from your retirement fund…

Wealth Management Chula Vista, PART 2
Retirement Planning Chula Vista, PART 3

Let’s Get Connected!
If you want to get started on your journey today or would like individualized investment/financial advice from LPL financial advisor, John Lohrenz, please contact JKL Wealth Management at:

Phone: (858) 535-1705
Fax: (858) 535-1701
Email: john.lohrenz@lpl.com

Alternatively, fill out the Contact Form and we’ll get back to you shortly.

Physical Address
731 S. Hwy 101, Suite 2K, Solana Beach CA 92075

Securities and Advisory services offered through LPL Financial, a registered investment Advisor. Member FINRA/SIPC.


About Chula Vista, California

Chula Vista – meaning ‘beautiful view’ in Spanish – is the second biggest city in the San Diego Urban region and the 14th biggest city in the state of California. Chula Vista has a large population of more than 243,916 people, as recorded in 2010. The area is close to downtown San Diego and the border of Mexico. A Mediterranean climate features here, with cool winters and very warm summers. The business environment in Chula Vista promotes growth and development and small businesses here accounts for most of the economy and business sector. Some of the tourist attractions in Chula Vista include OnStage Playhouse, Chula Vista Marina and Otay Valley Regional Park, among many others. The city’s busiest shopping center is the Chula Vista Center.