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.