Important information about retirement plan loans

Cautions

Before you borrow from your retirement account, be sure you understand the following cautions:

• The amount of interest you pay back to your account could be less than the amount your account might have otherwise earned. A five year, $10,000 loan with a 5% interest rate would generate $1,323 in interest payable to your retirement account. But if the $10,000 had remained in a retirement investment earning 8%, the earnings to the account would have been $4,898. That's $3,575 more in earnings! Compounding the interest earned on $3,575 at 8% over the next 20 years illustrates the long-term cost of a $10,000 loan. In this example you could potentially have $17,613 in lost earnings.
• Taking a loan may be more expensive than you think. The interest on your loan payments may be subject to double taxation. Typically, your ordinary income (paycheck), which is taxable, will be used to make your loan payments. Then, when you retire, you will receive distributions from your retirement account, which will be taxable.
• Failure to repay your loan could have adverse tax consequences. If you default on a loan, the unpaid balance is treated as a withdrawal subject to ordinary income tax. A 10% additional tax may be imposed if you are younger than 59 ½ when the default occurs.

Loan Amount

The minimum loan amount is $1,000. This requires a vested account balance of at least $2,000. The maximum you are allowed to borrow from your retirement account is the lesser of:

• 50% of your vested balance; or
• $50,000 minus your highest outstanding loan balance(s) during the previous 12 months, if any, from all plans maintained by your employer.

Per IRS rules, GuideStone is not able to create a loan exceeding 50 percent of your vested account balance. Therefore, if at time of issue your requested loan balance exceeds 50 percent of your vested balance, we will contact you in order to create a new loan document.

If you have participated in more than one plan, you may apply for a loan from each one, assuming you are otherwise eligible. Special rules apply when you have loans from plans of an employer who maintains multiple plans or who is part of a controlled group of employers.

Loan Terms

You may request a participant loan with repayment terms from one to five years. A principal residence loan may be requested with repayment terms from one to 10 years. The principal residence loan can only be used for a down payment of a primary residence.

Loan Rate

The interest rate for loans is the prime rate plus 1 percentage point. GuideStone uses the prime rate published in The Wall Street Journal's "Money Rates" column. The interest rate will be revised the day after a change is published in The Wall Street Journal. After you have reviewed and signed the dated loan forms and the loan is issued, the rate is fixed for the term of the loan.

Loan Payments

Repayment of the loan is via electronic drafts from your checking or savings account through the Electronic Funds Transfer (EFT) system.

Missed Payments

It is your responsibility to ensure the repayment of your loan. If an Electronic Funds Transfer (EFT) draft is rejected, GuideStone will issue a notice to inform you of a missed payment. This is to help prevent your loan from going into default, resulting in a taxable deemed distribution. Make-up payments may only be submitted on-line through your GuideStone account.

Cure Period

The Cure Period is a repayment grace period ending on the last day of the calendar quarter following the quarter in which a default occurs.

Loan Default

A loan is in default when you fail to repay the loan in accordance with its terms. The default will result in a taxable deemed distribution if all loan payments for the previous quarter are not made by the end of the current quarter. A borrower's failure to cure to default before the end of the cure period will result in a taxable event for the borrower. GuideStone will issue a 1099R showing the remaining unpaid balance as includable in gross income. Participants younger than 59 ½ may also be subject to the 10% early withdrawal penalty.