Certified Plan Sponsor Professional (CPSP) Practice Exam

Is it true that most 401(k) plans allow participants to take loans from their accounts?

1. True

2. False

3. Only under certain conditions

4. Only if the account balance is over a certain amount

The correct answer is: True

Many 401(k) plans do indeed allow participants to take loans from their accounts, which is a feature intended to provide financial flexibility for plan participants. When a 401(k) plan permits loans, it typically allows participants to borrow a portion of their vested account balance, with specific limits set by the plan itself and the IRS. The loan must generally be repaid with interest, and repayment terms are defined in the plan documents. This aspect enables participants to access funds without incurring immediate tax liabilities, as long as the loan is repaid according to the set terms. It’s essential for participants to review their specific plan provisions to understand the rules and limits regarding loans, as not all plans may offer this feature or might have particular conditions attached. The other options capture scenarios that may limit loan availability but do not represent the general truth that a significant number of 401(k) plans offer loans as a benefit to participants.