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How to borrow against pension payments

Depending on the type of pension provided to you by your employer, you might be able to borrow money against that retirement plan. There are different types of pension plans from the traditional employer-funded benefit to the newer employer match plans known as 401(k) and 403(b). There are a number of ways to borrow money earmarked for retirement to use for expenses today. Many of the withdrawal options available are appealing but they come with drawbacks that should be considered before you borrow.

Use a pension funding program. These programs which are legal in most states allow you to collect a current lump sum payment in exchange for assigning the right to the company to receive a set number of your future pension payments. These programs are not considered loans but an assignment of future benefits.

Apply for a pension loan. Many states that provide pension benefits outside the Social Security program offer hardship loans to their plan participants. Most programs have eligibility guidelines such as minimum contribution requirements, active participation in the plan and a cap on the number of loans that can be taken in a given year. The Internal Revenue Service requires any pension loan from a public sector employer to have a maximum repayment schedule of five years.

Borrow against your private pension plan. 401(k) and 403(b) private pension plans have provisions for hardship withdrawals. Beware there are various stipulations and requirements to meet in order to access these funds. Because contributions made to these plans are made pretax any withdrawals are considered income by the IRS and are taxable and subject to possible early withdrawal penalties.