Jpmorgan And Fidelity 401(K) Loans: What You Need To Know

JPMorgan allows account holders to borrow against their retirement savings account through a 401(k) loan. The loan is repaid, with interest, through payroll deductions. It is unclear whether JPMorgan allows loans on a Fidelity 401k account, as this would depend on the account holder's plan. However, JPMorgan does allow former employees to transfer their pension to a new 401(k) plan, which can be done through a rollover.

Borrowing from a JPMorgan 401(k) account

When requesting a loan from your JPMorgan 401(k) account, you will need to log in to your J.P. Morgan account and select the appropriate options under "Retirement Overview." You can borrow up to half of your vested account balance, with a maximum of $50,000, and a minimum loan amount of $1,000. There is a one-time $175 processing fee and a $75 annual fee for servicing the loan. It's important to note that if you have an existing loan or have had one in the past 365 days, the calculation for your maximum allowed loan amount becomes more complicated.

The loan term is typically 1-5 years, but longer terms may be allowed if the loan is used to purchase a primary residence. Borrowing from your 401(k) plan can be done for several reasons permitted by the IRS, such as paying for a primary residence, medical expenses, or tuition. It's important to consult a financial professional before making any decisions, as there can be significant financial implications.

Repayments are made through payroll deductions, with your employer withholding a specified amount from your paycheck and submitting it directly to J.P. Morgan until the loan is fully repaid. Lump-sum repayments can also be made through the saver portal. If you leave your job, your plan may require you to repay the loan in full. Failure to repay the loan, including interest, according to the loan's terms, will result in unpaid amounts becoming a plan distribution to you, which can have tax implications.

Loan limits and fees

JPMorgan allows loans on 401(k) plans. The loan is a way to borrow against your retirement account while agreeing to repay the balance, plus interest, within a specific timeframe. Generally, loans have a term of 1-5 years, although your plan may allow a longer term if you use the loan to purchase a primary residence.

You can borrow up to half of your vested account balance, with a maximum of $50,000. There is a minimum loan amount of $1,000. If you already have an outstanding loan or have had one in the past 365 days, the calculation of your maximum allowed loan gets a little more complicated. In that case, your maximum loan is the lesser of: $50,000 minus the maximum outstanding balance in the past 365 days, or half of your vested balance plus your current outstanding loan balance minus your current loan balance.

There is a one-time $175 fee to process your loan and a $75 annual fee (charged quarterly) to service your loan. There may be additional charges if you elect FedEx check delivery.

If you leave your current job, you might have to repay your loan in full very soon after termination. If you can't repay the loan for any reason, it's considered defaulted, and you'll owe both taxes and a 10% penalty on the outstanding balance if you're under 59 and a half years old.

To check if your plan allows loans, review your Plan Adoption Agreement. This can be found in the "My Plan Basics" section of your employer portal. If your plan does allow loans, navigate to the "My Plan" page by selecting the document icon on the left-hand side of your screen. Then, click Documents. Within the "Plan Documents" section, you will find a "Loan Procedures" document.

Loan approval and processing times

The loan approval and processing times for 401k loans vary depending on several factors, including the complexity of the case, the number of people involved in the approval process, and the method of application.

For JPMorgan Everyday 401K, the review process for a loan request takes up to 5 business days. They will review plan documents, confirm that your plan allows loans, check your eligibility, request spousal consent (if applicable), and reconcile any discrepancies. Once approved, it takes 2-3 days to sell your investments and generate the requested cash amount. The payment is then issued, which usually takes another 2-3 days via ACH or regular mail if a check is requested. Overall, you can expect to receive the funds within approximately 10 business days if your application is in good order.

In general, the loan approval and processing time for 401k loans can range from a few days to several weeks. Online applications tend to be faster, sometimes taking as little as a day, due to automated loan processing. On the other hand, manual applications may require signatures from multiple people, which increases the processing time. The time taken for approval also depends on whether additional documentation is required, especially if you are purchasing a primary residence. This additional review can take around 5-7 business days or longer, depending on the documentation needed.

It is important to note that the investment provider typically processes the request and sends out the money within a day. However, this step can be delayed if there are discrepancies between the information provided and the records of the financial institution.

To expedite the process, it is recommended to opt for electronic fund transfers, such as direct deposit or wire transfer, as they can take as little as two to three days for the funds to arrive once the loan is approved. In contrast, receiving a check by mail can add an extra day or more, depending on postal services and clearing times.

Additionally, it is worth mentioning that if you have an old 401k with a previous employer, you may not be allowed to borrow from those retirement savings. However, there are services available, such as Beagle, that can assist in unlocking your old 401k and taking out a loan against that retirement money.

Repaying the loan

Repaying a 401(k) loan from JPMorgan Everyday 401K can be done through payroll deductions or a lump sum repayment. Employers are responsible for setting up loan repayment codes in their payroll systems. This is still applicable to employers that have integrated their payroll provider with JPMorgan. Deductions are withheld from employee compensation and contributed to JPMorgan.

If you leave your job, you may have to repay your loan in full in a short time frame. If you can't repay the loan for any reason, it is considered defaulted, and you will owe taxes and a 10% penalty on the outstanding balance if you are under 59 and a half years old.

If you have an outstanding balance on a loan and terminate your employment, your employer may require you to repay the total outstanding balance. If you fail to do so, the loan will be considered "in default". This means that the outstanding loan balance will be treated as a retirement plan distribution and will be reported to the IRS on a Form 1099-R. A 1099-R will then be issued to the former employee, and applicable taxes and penalties will apply.

A terminated employee has a limited time to repay the loan before it becomes a taxable distribution. The loan will become a taxable distribution and cannot be repaid at the earlier of the following two situations: by the end of the "Cure Period", which is the last day of the calendar quarter following the calendar quarter in which the terminated employee missed their first loan repayment. For example, if they missed their June payment, their loan would become a taxable distribution at the end of September.

Although not directly answering the repayment question, it is worth noting that transferring a pension from JPMorgan to Fidelity 401k is possible. The ability to process a rollover from a previous employer's pension plan into a new 401(k) will be plan-specific. If your new 401(k) plan is held at Fidelity, you can review the Summary Plan Description (SPD) of your current 401(k) to verify it will accept a transfer into the plan.

Leaving your job with an outstanding loan

It is important to understand the implications of leaving your job with an outstanding 401(k) loan. The consequences can vary depending on the specifics of your plan and your employer's policies. Here are some key points to consider:

Loan Repayment Options

Firstly, review your loan repayment options. Some plans may require full repayment of the loan upon termination of employment. This is because payroll deductions, which are typically used to repay 401(k) loans, are no longer an option once you leave the job. If you are unable to repay the loan in full, there may be alternative methods to consider, such as linking your bank account to continue payments. However, be aware that many plans have strict deadlines for repayment after leaving a job, and failure to meet these deadlines can result in tax consequences and penalties.

Loan Offset and Tax Implications

If you cannot repay your 401(k) loan in full, your outstanding loan balance may be treated as a loan offset. This means the remaining loan balance is taken from your 401(k) funds, reducing your overall retirement savings. A loan offset is considered a taxable distribution, and you will be required to pay regular income taxes on the offset amount. Additionally, if you are under the age of 55, you may also face an early distribution penalty of 10%.

Rollover Options

When you leave your job, you may have the option to roll over your 401(k) funds, including any outstanding loan balance, into a new retirement account with your new employer or into an IRA. This can help you avoid immediate tax consequences and penalties associated with loan offsets. However, it is important to note that not all plans accept rollovers, so be sure to check with your new employer's plan administrator to understand their specific policies.

Default and Tax Reporting

If you fail to repay your 401(k) loan after leaving your job, it may be considered a default. In this case, the outstanding loan balance will be treated as a retirement plan distribution and reported to the IRS on a Form 1099-R. You will then receive the form, and applicable taxes and penalties will apply. Therefore, it is crucial to understand the repayment expectations and deadlines to avoid adverse financial consequences.

Plan-Specific Details

Lastly, it is essential to review the specific details of your 401(k) plan. Each plan has unique provisions regarding loans, repayment terms, and rollover options. You can refer to your Plan Adoption Agreement and the "Loan Procedures" document within the "My Plan Basics" section of your employer portal. Understanding these details will help you make informed decisions and navigate the process effectively.

Frequently asked questions