If you need money for education costs or a down payment on a home, you can borrow funds from either your pension plan or your 401k retirement plan. However, you need to make an informed decision on which resource to borrow this money from. The application process and method of repayment varies sharply between the two options.
Evaluate your options. If you borrow from your 401k plan, you will be limited to borrowing 50 percent of your balance or $50,000 maximum. The money you borrow from your 401k will be replaced in the form of payments deducted from your paycheck.
Borrowing money from your pension plan, a process referred to as pension funding, is vastly different. You actually borrow the money from a pension funding organization, which purchases pension payments in the amount that is borrowed. So when you retire, those pension payments are sent to the organization instead of to you, to repay the loan. There is no limit on how much can be borrowed, but some companies have strict loan qualification guidelines.
Decide how much to borrow. Contact the company that handles your 401k and find out the balance. The maximum amount you can borrow will be 50 percent of that balance. Ask about the repayment schedule to determine whether you can afford to have these payments taken from your pay every pay period.
If you want to borrow from your pension plan, make sure the loan won't hurt you in the future more than it will help you now.
File the paperwork for the loans. For a 401k plan, you can call the company that manages the plan and initiate a verbal contract, or you may be able to fill out the necessary forms online. The waiting period for receiving funds can be up to two weeks.
To borrow from your pension plan, you have to file an application with a pension funding organization. The waiting period for receiving funds is usually not more than a month.