What is the "401(k) loan feature"?

The "401(k) loan feature" specifically refers to the provision within a 401(k) plan that allows participants to borrow money from their own retirement savings. This borrowing can be beneficial for participants who need access to funds for various reasons, such as a financial emergency or the purchase of a home.

Typically, the amount that can be borrowed is limited to a certain percentage of the vested account balance, and the participant is required to repay the loan with interest over a specified period, usually within five years. Importantly, the repayments, including interest, are made back into the participant’s own 401(k) account, which means that the individual is essentially paying themselves back. This feature provides a flexible way to access funds without incurring early withdrawal penalties or taxes, as long as the loan is repaid according to the plan’s terms.

This understanding clarifies why the other choices are not correct. Taking a cash advance refers more generally to borrowing without the structured payback plan or the specific regulations associated with 401(k) loans. A penalty-free withdrawal at retirement is separate from borrowing, as it applies to accessing funds upon reaching retirement age rather than through a loan mechanism. Lastly, increasing employer matching contributions does not relate to loans; instead,