A 401k plan is an employer-sponsored, tax-advantaged retirement investment plan. Although your employer may offer a 401k that has investments in Vanguard funds, your employer's plan may have different rules than an account you rollover to be administered directly by the Vanguard Group. With a Vanguard-administered 401k, you can borrow up to one-half the value of your account to a maximum of $50,000. This is in contrast to IRAs, from which the IRS prohibits loans. Some companies also prohibit 401k loans from their own 401k plans, unlike the Vanguard 401k.
Read your most recent 401k statement. The amount of assets you have in your Vanguard 401k determines how much you can borrow. You do not have to liquidate any investment in order to borrow cash from the account, so you do not have to make any investment decisions about what to sell in order to get money out of your 401k.
Contact the Vanguard 401k plan administrator. Confirm that you can take a loan against your account. Ask what the maximum amount you can borrow is and the terms of any loans you take. Get a copy of the paperwork required to initiate your loan request.
Review the terms of the loan. Although one of the benefits of a 401k plan loan is that you repay the interest to your own account, signing on for a high interest rate loan will cost you more in monthly payments and hurt your cash flow. Also, understand that the IRS may treat your loan as a distribution under certain circumstances, such as if you separate from service with your company for any reason. In this instance, most 401k loans must be repaid within 30 days or else the amount of the loan will be taxable income to you.
Submit your loan paperwork. Follow the instructions of the Vanguard 401k administrator. Typically, you will have to choose the amount of the loan and may be able to determine the time frame for repayment, up to five years. Sign and return the paperwork.
Monitor the repayment of your loan. If you prefer, Vanguard will take your monthly 401k loan repayment directly out of your paycheck. Verify that the amount withdrawn is correct, and ensure that the payment is credited back to your 401k account. You can also make direct payments to the plan if you prefer.