Knowing how long it takes to receive a 401(k) loan is important if you intend to borrow from your retirement account. Find out how long it will take for mailed checks or direct deposits to arrive. 3 min read.
Your 401(k) serves as a safety net when a 401(k) loan is your only option, allowing you to borrow to cover medical costs, avoid foreclosure, or even pay for your child’s or spouse’s college expenses. Knowing how long it will take to receive the 401(k) loan funds can help you prepare ahead of time if you have an urgent need.
It may take a day if you submitted an online loan application or several weeks if you submitted a manual loan application before your 401(k) loan is approved. Online applications typically process quickly because loans are processed automatically. However, manual applications might require multiple signatures, which lengthens the time it takes to process loan applications.
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Knowing how long it takes to receive a 401(k) loan is important if you intend to borrow from your retirement account. Find out how long it will take for mailed checks or direct deposits to arrive. 3 min read.
Your 401(k) serves as a safety net when a 401(k) loan is your only option, allowing you to borrow to cover medical costs, avoid foreclosure, or even pay for your child’s or spouse’s college expenses. Knowing how long it will take to receive the 401(k) loan funds can help you prepare ahead of time if you have an urgent need.
It may take a day if you submitted an online loan application or several weeks if you submitted a manual loan application before your 401(k) loan is approved. Online applications typically process quickly because loans are processed automatically. However, manual applications might require multiple signatures, which lengthens the time it takes to process loan applications.
Getting started with 401(k) loans
If you intend to borrow from your 401(k) plan, start by speaking with your benefits manager to confirm that you are eligible to do so. You should also be familiar with the plan’s 401(k) loan guidelines. Fill out the loan application online or pick up a paper copy from the benefits manager if your plan allows 401(k) loans and you have a sufficient balance.
Usually, the plan administrator will review the loan application to decide if you have sufficient balance to cover the loan you want to borrow. If you meet the requirements, your request will be approved, and the funds disbursed to your account. You should then start making periodic loan payments over the agreed loan repayment period.
How long do 401(k) loans take?
The time it takes to receive the money after your 401(k) loan is approved can range from one day to several weeks. It could take one to five days for the money to arrive in your account after you submit an online loan application.
For manual applications, the period it takes for the 401(k) funds to be released depends on how fast the request moves from the employer to the plan administrator. Since several people will sign off the request, there may be delays as the application is sent down the line.
The trustee, administrator, and investment provider are the principal players. The loan must be approved by management at the employer’s business before being forwarded to a third-party administrator, or TPA, who will check that it complies with the regulations. The investment provider will receive the request to process it, sell some of your holdings, and release the funds.
Find out how long it takes the employer to release the 401(k) loan if you have a pressing financial need. To begin, inquire about typical turnaround times with the HR or benefits manager. Ask your coworkers how long it took them to receive the 401(k) loan funds as well.
How is a 401(k) loan disbursed?
The majority of plans send out 401(k) loans via check, direct deposit, or wire transfer. You can choose to receive money via direct deposit or wire transfer if you need money right away. Once the loan is approved, it may take two to three days for the money to arrive via electronic transfer.
It might take one to two weeks to receive the check if the plan only uses mailed checks for disbursement. Additionally, you must deposit the check into your bank account, which could delay its clearing for an additional day. Check disbursements can take weeks to be sent, deposited, and cleared in comparison to direct deposit and wire transfers.
How much does it cost to take 401(k) loans?
There are certain fees associated with taking a loan out of your 401(k). One-time origination fees, loan interest, and the opportunity cost of withdrawing funds from your retirement account are a few of these expenses.
For large loans, the majority of 401(k) plans impose a one-time origination fee of $50 to $100 or more. For instance, if you pay $75 for a $1,000 loan, you will incur an upfront loss of $75. A $25–$50 processing and maintenance fee is an additional option.
You will pay interest on the loan in addition to these fees, but this time, you will be paying the interest to yourself. The interest rate on 401(k) loans is typically 1% to 2% higher than the prime rate.
The opportunity cost of borrowing from your 401(k) should also be taken into account. You won’t be able to take advantage of market gains because the amount of a loan you take from a 401(k) is taken out of your plan.
Can you borrow from 401(k)?
Check to see if your employer allows 401(k) loans if you have a 401(k) through your employer. The IRS permits 401(k) plans to provide loans to participants, but employers can choose to implement this or not. Some plans may decide not to allow loans.
If you want to know if your employer allows 401(k) loans, check the summary plan description. Additionally, you can ask your employer if you can borrow money against your retirement savings. You can still take a hardship withdrawal from your 401(k) account if your employer forbids 401(k) loans.
You may not be able to access your retirement funds if you have an old 401(k) with a previous employer. However, Beagle can assist you in accessing your previous 401(k) and borrowing against the retirement funds in a 401(k). Additionally, you can transfer your old 401(k) to our IRA to gain access to a larger investment pool and more control over your retirement funds.
FAQ
How long does a 401k loan take?
Normally, the term of a 401(k) loan is five years. The government’s maximum repayment period is that long, but you might be able to negotiate a shorter term if that’s what you prefer. The only exception is if you’re using the cash to purchase your primary residence—the home in which you’ll live there all year round.
Can you be denied a 401k loan?
Your request for a 401(k) loan could be rejected by a plan for a number of reasons. Due to the possibility of your job being eliminated during a restructuring process, your impending retirement, or the fact that you have borrowed more money than allowed, your 401(k) loan may be rejected. If your 401(k) loan was rejected, you need to learn the reasons why.
Does my employer have to approve my 401k loan?
The 401(k) plan administrator is responsible for approving 401(k) loans. The plan administrator must review your loan application after you submit it to determine whether you are eligible to borrow from your retirement savings.
How fast can you get your 401k money out?
It can take between three and ten business days to get a check after cashing out your 401(k), depending on who manages your account (typically a brokerage, bank, or other financial institution).