Fidelity 401(k) Loan Terms and Conditions: A Comprehensive Guide

Understanding the terms and conditions of a Fidelity 401(k) loan is crucial for anyone considering this financial option. A 401(k) loan allows participants to borrow money from their retirement savings, but it comes with specific rules and risks. This guide will cover everything you need to know, from eligibility requirements to repayment plans, ensuring you make an informed decision.

Eligibility and Limits
To qualify for a Fidelity 401(k) loan, participants must be actively employed and have a vested balance in their 401(k) account. The maximum loan amount is generally the lesser of $50,000 or 50% of the vested account balance. It's essential to understand that this loan is not free money; it must be repaid with interest, typically at a rate slightly above the prime rate.

Interest Rates and Repayment Terms
The interest rate for a Fidelity 401(k) loan is fixed for the duration of the loan and is generally set at the prime rate plus 1-2%. Repayment terms usually span five years, although loans for the purchase of a primary residence can be extended to 15 years. Payments are typically made through payroll deductions, making it easier to stay on track with repayments.

Impact on Retirement Savings
Borrowing from your 401(k) can have significant long-term effects on your retirement savings. While the interest paid on the loan goes back into your account, the money withdrawn is no longer growing tax-deferred, potentially reducing your retirement nest egg. Additionally, if you leave your job before repaying the loan, the outstanding balance may become due immediately, which could lead to financial strain.

Tax Implications
If you fail to repay the loan on time, the outstanding amount is considered a distribution and becomes subject to income tax and, if you're under age 59½, a 10% early withdrawal penalty. This can turn a seemingly simple loan into a costly financial mistake if not managed carefully.

Pros and Cons of a Fidelity 401(k) Loan
Pros:

• Access to funds without a credit check.
• No impact on your credit score.
• Interest is paid back to your own account.

Cons:

• Potential reduction in retirement savings growth.
• Risk of immediate repayment if you leave your job.
• Possible tax penalties for default.

Important Considerations
Before taking out a 401(k) loan, it's important to consider alternative options. Borrowing from your retirement should be a last resort. Assess your financial situation carefully and consult with a financial advisor to ensure that a 401(k) loan is the best choice for your circumstances.

Conclusion
A Fidelity 401(k) loan can be a helpful financial tool, but it comes with risks that should not be overlooked. By understanding the terms and conditions and weighing the pros and cons, you can make a decision that aligns with your long-term financial goals. Remember, the key to a secure retirement is not just saving, but also protecting those savings from unnecessary withdrawals and risks.