Borrowing from your 401(k) plan

An excellent source of down payment money is a loan against your 401(k) plan. Check with your employer or the plan administrator to see whether your plan allows for loans. If it does, the maximum loan amount under the law is the lesser of one-half of your vested balance in the plan or $50,000 (unless you have less than $20,000 in the account, in which case you can borrow the amount of your vested balance, but no more than $10,000). Other condition – including maximum term, the minimum loan amount, the interest rate, and applicable loan fees – are set by your employer. Any loan must be repaid, with interest, in a “reasonable amount of time” although the Tax Code doesn’t define “reasonable.”

Be sure to find out what happens if you leave the company before fully repaying a loan from your 401(k) plan. If the loan would become due immediately upon your departure, income tax and penalties may apply to the outstanding balance. But, you may be able to avoid all this hassle by repaying the loan before you leave.

Borrowing against your 401(k) plan has several advantages:

• By borrowing against your own plan, you are receiving the interest payments.
• The loan fees are usually lower than a bank would charge.
• There’s less paperwork than is usually required in getting a bank loan.

DISADVANTAGE:
The interest you paid to your 401(k) account will be taxed twice.

For detail info, please also refer to:

http://www.ericfang.com/401kforDownpayment
http://web.wenxuecity.com/BBSView.php?SubID=tzlc&MsgID=169446

http://www.moneyanswers.com/borrowing_from_401K_article.html