Legal Requirements for Retirement Plan Loans
Question:
Which of the following are correct statements about the legal requirements for a loan to a participant from a retirement plan?
A) The term of a loan for a medical emergency must not exceed five years.
B) Loans from SEP IRAs are not permitted.
C) The term of a loan used to acquire a principal residence may exceed five years.
D) Loans from a SIMPLE 401(k) plan are permitted.
Answer Description:
Here are the correct statements about the legal requirements for a loan to a participant from a retirement plan:
Loans from SEP IRAs are not permitted.
SEP IRAs do not allow loans.
The term of a loan used to acquire a principal residence may exceed five years.
Loans for purchasing a primary residence can have a term of up to 30 years, depending on the plan’s rules.
Incorrect Statements:
The term of a loan for a medical emergency must not exceed five years.
There is no specific requirement that loans for medical emergencies must not exceed five years; however, the general loan term limit is five years unless for a principal residence.
Loans from a SIMPLE 401(k) plan are permitted.
SIMPLE 401(k) plans generally do not permit loans.
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