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Member Question: Can I Take a Loan on My Retirement?

Loan Illustration of Money Flying Out of a BankBy Genevieve McBride, ASRS Member Advisory Center Supervisor

One of most frequently asked questions received by the Member Advisory Center is “Can I take a loan out of my retirement?”

The answer, in a word, is "no”. The ASRS retirement plan is classified as a 401(a) defined benefit plan by the Internal Revenue Service (IRS). IRS regulations make no provision for taking a loan against a 401(a) plan as may be the case with other retirement savings plans, such as a 401(k) or voluntary 457 deferred compensation plans (such as the ASRS Supplemental Savings Plan), which may allow loans.

While these are your contributions, and you do have a right to them, there are only two times members can access to their funds. First, if you retire and take a monthly benefit or, if eligible, a lump sum retirement payment. Second, if you request a refund of contributions after terminating employment with any ASRS employer.

The next most frequently asked question is, “So, what if I terminate employment? Can I take a portion of it and leave some in ASRS?” Again, the answer is "no". The same IRS regulations do not allow partial withdrawal of contributions – you either withdraw all of your contributions and terminate membership, or leave all your monies on account and retain your membership rights as an inactive member with access to future benefits.

If you do choose to terminate employment and withdraw your funds, you have three distribution options: 100% direct payment to yourself; 100% rollover into another qualified retirement plan; or a combination direct payment and rollover.

It is very important, even in difficult economic times, to give serious consideration when withdrawing your funds - especially if you have not reached retirement eligibility. Keep in mind that when you withdraw your contributions, you cancel your years of service in the ASRS and forfeit your rights to a future retirement benefit. Depending on your years of service, it may be a small benefit paid in a one-time lump sum, but as an ASRS retiree, you retain your rights to enroll in the ASRS’ retiree group health insurance, another valuable benefit to consider.

Learn more about Refunding Your Account and Terminating Membership.

Learn more about Retirement Eligibility.

HAVE A QUESTION WE CAN ANSWER?

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This article appeared in "Expanding Your Financial Horizons" (Q2-2016), a digital publication of the ASRS.

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