Certified Plan Sponsor Professional (CPSP) Practice Exam

True or False: Kristy is allowed by law to take a loan from her 401(k) account and must repay it within 5 years.

1. True

2. False

3. Only if her 401(k) plan allows it

4. Only for certain types of loans

The correct answer is: False

The assertion that Kristy must repay a loan from her 401(k) account within 5 years is generally true except for specific circumstances, such as using the loan for the purchase of a primary residence, where the repayment period may extend beyond 5 years. The key aspect of 401(k) loans is not about a universal requirement, but rather about the stipulations set forth by individual plan documents. 401(k) plans have the provision to allow loans, but it is ultimately contingent on whether the specific plan permits such loans. Therefore, if Kristy's plan does not allow loans, she would not be legally permitted to take one. Significantly, the repayment timeline varies based on the purpose of the loan and the plan's terms. Hence, while the general principle regarding the repayment period is accurate for many scenarios, stating it as an absolute without considering the plan's provisions and conditions makes the initial true statement misleading. The appropriate assertion would emphasize that whether Kristy can take a loan and under which terms depends on her specific plan’s rules.