Expert: Allen - 10/31/2009

Question
Well my husband and I are in a bad spot right now and so is everyone else. I asked him to borrow from his pension to consolidate our loans. Is it true until the loan is payed back that no money will be added to it? What is the interest rate on something like that? What is the worse thing about borowing from your pension?

Answer
Sorry to read about your situation.

You will have to verify if his plan allows loans. Many plans do. A few don't. If the plan does allow loans, you should ask the Plan Administrator for a copy of the loan policy. That will tell you what interest rate is charged and other information. Taking a loan does not change the ability to make contributions or anything else.

The worst thing about taking a loan is that the money is not invested. Also, the loan must be repaid according to its terms. Failure to do so will result in what is known as a deemed distribution and substantial taxes will due.