How to take out a loan from a 401k plan?

First, you will need to check if your 401k plan even allows the loan option. You can check with your plan administrator or go over the plan policy. If your 401k plan allows you to borrow from your 401k plan, you will also need to fill out a loan application and follow a payment schedule. 

The good news is the interest is paid back to your plan, so you are paying yourself interest instead of to another lender. The loan is also tax-free and penalty-free. However, the maximum borrowing period is 5 years, which can require you to make higher payments, depending on how much you plan to borrow. Keep in mind that if you fail to pay back the loan and interest on time, the unpaid amount will be taxed as distribution. An early withdrawal penalty will also apply on top of your income taxes if you're less than 59 1/2 years old.

A good first step if you are considering a 401(k) loan is to contact the human resources (HR) department at your employer and ask for information about 401(k) loans at your company. Although many retirement plan loans have similar rules and requirements, they can differ from plan to plan. Generally, you may borrow up to 50% of your vested 401(k) balance, up to a maximum of $50,000.  Repayment periods are often over 5 years, though some plans allow for longer repayment periods. 

Before you borrow against your hard-earned retirement savings, is a 401(k) loan really the best option for you?  In additions to falling behind with retirement savings efforts, borrowing against your retirement plan may also lead to a big tax bill if you leave your employer for any reason and are unable to pay back the loan balance fairly quickly. Even when you pay the loan back, you will be doing so with after tax dollars that will eventually get taxed again when you take 401(k) distributions in retirement.  For more information on the mechanics as well as the pros and cons of retirement plan loans, read Elizabeth O'brien's article on MarketWatch.com:  https://www.marketwatch.com/story/avoid-the-temptation-of-dipping-into-your-401k-2015-06-04