Two-fifths of workers allowed to borrow from their plans have done so within the past five years, according to a recent Pension Research Council study, “Borrowing from the Future: 401(k) Plan Loans and Loan Defaults .”
Co-authors Timothy Lu Jun, Olivia S. Mitchell, Steve Utkus, and Jean Young also show that younger and lower-paid employees are most likely to take out 401(k) loans. Those who borrow against their retirement and leave their jobs are most likely to default on the loans – meaning that they own income tax on what they’ve borrowed plus a 10 percent tax penalty.
Money taken from a retirement plan but not returned becomes part of retirement plan “leakage.” To learn more about this, click here to read the full article on Benefitspro.com.