Taking a loan from your 401(k) can provide access to funds during challenging times. But will your employer know if you take out a loan against your retirement account? Here’s what you need to know.
In most cases, employers are not notified when employees take 401(k) loans. The loan process is handled confidentially through the plan’s custodian. Employers only receive notification in certain scenarios:
- If you default on the 401(k) loan
- If a loan distribution is required to repay the balance
- If matching contributions are suspended during the loan term
Some employers may also require 401(k) loans to be repaid first before allowing hardship withdrawals. But otherwise, your employer likely will not know if you take a 401(k) loan.
401(k) Loan Usage Statistics
According to 2022 EBRI data:
- 19% of 401(k) participants have an outstanding loan
- The average 401(k) loan balance is $11,100
- The top uses are debt consolidation, home repairs, education, and medical expenses
Tips for 401(k) Loans
If considering a 401(k) loan, be sure to:
- Only borrow what you need and can repay
- Understand the interest rate and repayment terms
- Budget for on-time monthly payments
- Look into repayment protection insurance
- Explore alternatives if unable to repay
Talk to your plan custodian and a financial advisor to weigh the pros and cons before moving forward. While employers mostly don’t know about 401(k) loans, make sure you fully understand the implications yourself first.
