457(b) Loans FAQ
General Overview
What is a 457(b) loan?
If permitted by the plan, a 457(b) loan allows you to borrow money from your retirement account balance and repay it over time through payroll deductions. You are essentially borrowing from yourself, and the interest paid goes back into your account.
Who administers the loan?
Loans are processed and serviced through Spectrum, the plan’s record keeper with DecisionPoint Financial.
The loan does not show on your credit score or credit report.
Eligibility & Loan Limits
How much can I borrow?
IRS rules allow you to borrow the lesser of:
- $50,000, or
- 50% of your vested account balance
If you’ve had a loan balance in the past 12 months, your maximum will be reduced by that amount.
You can only have one loan out at a time.
Loan Terms & Repayment
What are the repayment terms?
General-purpose loans: up to 5 years
Primary residence loans: may be longer (if allowed by the plan)
How do I repay the loan?
Repayments are made through automatic payroll deductions.
Loan repayments do not count towards the annual contribution limit, nor do they change your current 457(b) contributions automatically.
What interest rate will I pay?
The interest rate is set at the time of the loan and is typically based on a benchmark rate (such as Prime) plus a small margin. The interest is paid back into your account.
You can estimate your loan payment using the “quick loan calculator” under the loans and withdrawals tab in your account.
Loan Process
How do I request a loan?
You can request a loan directly through your Spectrum/DecisionPoint portal at www.dp457b.com. Once logged in, click on the “Loans & Withdrawals” tab at the top of your dashboard. Then click “Get Started” or use the quick loan calculator to estimate your payment before you begin.
How will I receive the funds?
Funds are usually distributed via Direct deposit (PLAID) or mailed by check.
How long does it take to receive funds?
Once approved, loans are typically processed within a few business days. Timing may vary depending on employer approval and processing method, but once approved, you can expect the funds in about 2-3 weeks.
Important Considerations
What are the risks of taking a loan?
- Your borrowed funds are no longer invested in the market
- You may miss out on potential market growth
- Repayments are made with after-tax dollars
- If you leave employment, the loan may become due sooner
What happens if I leave my employer?
If you separate from service:
- The outstanding loan balance will become due after 2 full quarters or missed payments (approximately 6 months)
- If not repaid, the remaining balance will be treated as a taxable distribution
We have observed that repeated use of retirement plan loans can negatively impact long-term outcomes by reducing time in the market, limiting compounding growth, and creating ongoing repayment strain.
Fees & Taxes
Are there fees associated with the loan?
Yes, Spectrum charges:
- A loan origination fee ($90)
- Ongoing maintenance fees ($15/quarter)
Is the loan taxable?
- Not initially, if repaid according to schedule
- If the loan defaults (2 full quarters of missed payments), the outstanding balance at that time becomes taxable income. Default does not impact credit.
Loan repayments (principal + interest) are made with after-tax dollars (from your paycheck).
Early Payoff of Your Loan
Can I pay off my loan early?
Yes. You may pay off your loan in full at any time with no prepayment penalties. We encourage you to do this if possible, so dollars can be reinvested in your portfolio sooner.
Can I make extra or partial payments?
No. The plan does not allow additional or partial payments toward the loan balance. Payments must continue through the scheduled payroll deductions unless the loan is paid off in full.
How do I pay off my loan early?
To pay off your loan, you must request a loan payoff quote for the full remaining balance. Contact Spectrum directly at 253.565.4015 and ask for “Loan Payoff Instructions,” or contact DecisionPoint Financial at 253.883.4143. You can pay it off using a Wire or mail a check.
As always, please reach out if we can be of assistance.
- Your DecisionPoint Financial Planning Team -