You borrow from your plan
The plan administrator determines whether loans are available, how to apply, and what documentation is required.
401k Calculator & Guide
A 401(k) loan may let you borrow from your retirement savings and repay the money over time, often with interest credited to your account. But not every plan offers loans, and leaving your job or missing repayments can create significant tax consequences.
A 401(k) loan is a loan from your employer-sponsored retirement plan, if the plan permits it. You receive funds and make repayments under the plan's terms. Unlike a regular withdrawal, a properly structured plan loan generally is not immediately taxable when it meets federal requirements and is repaid as required.
The plan administrator determines whether loans are available, how to apply, and what documentation is required.
Repayments generally include principal and interest. Interest is credited to your retirement account according to the plan's procedures.
If a loan fails to meet repayment requirements, the unpaid amount may be treated as a taxable distribution, potentially with an additional tax.
Under the general federal rules, the maximum plan loan is usually the lesser of:
The $50,000 limit is reduced by the excess, if any, of the highest outstanding loan balance during the preceding 12 months over the current outstanding balance of plan loans.
The general rule limits borrowing to 50% of your vested balance. Special rules can permit a loan of up to $10,000 in certain cases when 50% of the vested balance is less than $10,000, but the plan is not required to offer that option.
| Example vested balance | 50% of balance | Possible general limit before other adjustments |
|---|---|---|
| $8,000 | $4,000 | Potentially up to $8,000 under the special small-balance rule, if the plan allows it |
| $20,000 | $10,000 | Up to $10,000 |
| $80,000 | $40,000 | Up to $40,000 |
| $150,000 | $75,000 | Generally up to $50,000 before applicable adjustments |
These are simplified illustrations. Actual limits can be affected by the plan's rules, prior loans, the vested balance used for the calculation, and applicable federal requirements. Do not assume that your full calculated amount is available.
Estimate a hypothetical monthly payment and total interest using a fixed-rate, fully amortizing loan. Enter the loan amount offered by your plan, the annual interest rate, and the repayment term.
Illustrative estimate only. Actual loan terms, payment timing, fees, and repayment rules may differ.
The calculator uses a standard amortization formula. It estimates payments and interest at the entered rate; it does not model your plan's exact payroll schedule, loan fees, changing balances, or investment returns you might have earned if the borrowed money had remained invested.
| Rule | General federal requirement | What to check |
|---|---|---|
| Repayment term | Generally, a loan must be repaid within five years, with an exception for certain loans used to acquire the participant's principal residence. | Ask what documentation and repayment schedule apply to a principal-residence loan. |
| Payment schedule | Repayments generally must be made in substantially level payments at least quarterly. | Many plans collect repayments through payroll deductions. |
| Interest | The loan must meet applicable plan and tax rules, including requirements for a reasonable rate of interest. | Check the rate, loan origination fee, and whether fees are deducted from proceeds or charged separately. |
| Missed payments | A failure to meet repayment terms can result in a deemed distribution after applicable correction periods. | Ask about any cure period and what happens if payroll deductions stop. |
| Leaving your job | Plan terms may require repayment, or an unpaid balance may be handled through a plan loan offset or another process. | Get the plan's specific job-separation rules in writing before borrowing. |
✓ May provide access to funds without applying for a traditional lender's loan.
✓ A compliant loan generally is not taxable when issued.
✓ Interest payments are credited to your retirement account under the plan's terms.
✓ The loan may have a predictable repayment schedule.
✕ Borrowed funds are no longer invested in the account while outstanding.
✕ Loan payments can reduce monthly take-home pay.
✕ Job changes or missed repayments can create complicated tax consequences.
✕ Fees and interest costs can make the loan less attractive than it first appears.
| Feature | 401(k) loan | 401(k) withdrawal |
|---|---|---|
| Repayment | Required under loan terms | Generally not repayable to the plan as a loan |
| Initial tax treatment | Generally not taxable if compliant | Taxable to the extent applicable rules treat the distribution as income |
| Additional 10% tax | Generally not due when the loan is compliant; a deemed distribution or offset can change the result | May apply to taxable early distributions unless an exception applies |
| Retirement savings | Borrowed funds leave the invested account while outstanding | Withdrawn funds leave the account permanently unless separately saved |
| Job-change risk | Loan repayment or offset rules may become important | Withdrawal tax treatment generally depends on the distribution and the individual's circumstances |
Neither option is automatically best. Compare the total cost, repayment obligations, impact on retirement savings, and your alternatives before deciding.
If available, cash savings may help you meet an immediate need without creating a retirement-plan loan obligation.
Compare the annual percentage rate, fees, payment schedule, and consequences of missing payments for other borrowing options.
Ask about hardship distributions, loan availability, repayment terms, and the plan's rules if you change jobs.
A loan that complies with the plan's terms and federal requirements generally is not taxable when made. If the loan defaults, becomes a deemed distribution, or is offset, tax consequences may arise. A distribution is different from a loan.
The general federal maximum is the lesser of $50,000, adjusted for certain prior loans, or 50% of your vested account balance. A special rule may allow up to $10,000 when 50% of the vested balance is less than that amount, but the plan does not have to offer it. Your plan's limits may be lower.
Most qualifying loans generally must be repaid within five years. Certain loans used to acquire the participant's principal residence may qualify for a longer term. Your plan documents specify the actual terms.
The outcome depends on the plan's terms and how the loan is handled. You may need to continue or accelerate repayment, or an unpaid balance may be offset against your account. A taxable offset may have rollover options and deadlines, so ask your plan administrator and tax professional promptly.
Generally, yes. The rate and any fees are determined under the plan's loan policy and applicable requirements. Interest is credited to your retirement account, but that does not mean the loan has no cost: fees, lost investment returns, and repayment risks still matter.
It depends on the plan. Federal limits account for certain outstanding and recent prior loans, and a plan may impose stricter limits or prohibit multiple simultaneous loans.
No. Plans are generally allowed, but not required, to offer participant loans. Check your summary plan description or contact the plan administrator.
There is no universal answer. Compare rates, fees, repayment flexibility, job-change risks, effects on retirement savings, and the consequences of default. Consider independent financial or tax advice for a major borrowing decision.
Understand the repayment schedule, the job-change rules, and the total cost before deciding whether a 401(k) loan fits your circumstances.
Explore 401(k) calculators →This page is for educational purposes only and does not provide individualized financial, investment, tax, or legal advice. Federal law, plan terms, and individual circumstances affect loan eligibility, borrowing limits, repayment requirements, and tax treatment. Calculator results are illustrative estimates, not a loan offer or guarantee. Verify current requirements with the IRS and your plan administrator before acting.
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