RPF M4 U4 Advantages and Disadvantages of Loans Flashcards
Study
What is a primary advantage of including a loan provision in a retirement plan?
It increases the attractiveness of the plan and encourages higher participation.
What is a key benefit of the loan application process for participants?
The loan application process is simple, often requiring little to no paperwork.
What is a significant advantage regarding credit checks for plan loans?
There is generally no credit check, making it easier to qualify for the loan.
Where is the interest paid for a loan from a qualified plan?
Interest is paid back to the participant’s account rather than to a lending institution.
What is a major disadvantage of taking a loan from a qualified plan?
The amount withdrawn for a loan is a lost opportunity for retirement savings.
What are potential costs associated with taking a loan from a qualified plan?
There may be fees for initiating a loan and ongoing administrative fees.
What happens if a participant loses their job regarding their plan loan?
The loan usually needs to be repaid in full immediately, or it becomes taxable.
What is a disadvantage for employers offering a loan program?
There is an increased administrative burden and additional expenses.
What is a potential tax consequence of repaying a plan loan?
Repayments are made with after-tax dollars and are taxed again upon distribution.
What should employers consider when deciding on a loan provision?
They should weigh the implications for participants and administrative service providers.
What is a general recommendation regarding taking loans from retirement plans?
Taking a loan from a plan is generally not recommended for most people.
