Educate Employees on 401(k) Loans

Employers should advise employees about taking out loans on their 401(k) and how those loans may affect their long-term financial goals.

When an employee takes money out of his or her 401(k) savings, that money is no longer there to provide additional growth.

Further, many 401(k) plans require an outstanding loan to be repaid in full upon separation from the company. This is a risk employees should be made aware of.

In December, the Federal Reserve announced it will raise interest rates by a quarter of a percentage point. This rise in interest rates will affect the cost of taking out a 401(k) loan. A higher interest rate means the employee will be required to make higher payments when repaying the loan. If an employee is unable to repay the loan, the loan will be treated as an early withdrawal subject to income taxes and additional tax penalties. Read More