Expert: Allen - 6/11/2007

Question
Hello,
I have been with my employer for 7 years and just found out I can borrow from my pension. I would like to do this but only so that I can put a down payment on a home. Would I still be penalized for this. I have been told I would not because it is used to purchase a home.
Thanks :-)

Answer
You can borrow from the plan with no penalty. However, you must pay back the loan just like you would pay any other loan. If you don't and the loan goes into default, the outstanding balance would be taxable income to you. You would than have to pay federal income tax, state income tax and a 10% federal excise tax. In addition, the loan would still be outstanding and the trustee for the plan could take action to have it paid.