Updated 2026-03-30
401(k) Loans: Rules, Risks & Calculator
Should you borrow from your 401(k)? Understand the rules, costs, and alternatives
A 401(k) loan lets you borrow up to 50% of your vested balance (max $50,000) and repay with interest over 5 years. The interest goes back to your account, but the true cost is the investment growth you miss while the money is out.
401(k) Loan Rules at a Glance
| Feature | Details |
|---|---|
| Maximum Loan | 50% of vested balance, up to $50,000 |
| Repayment Period | Up to 5 years (15 years for primary residence) |
| Interest Rate | Prime + 1% (typically 9-10% in 2026) |
| Repayment Method | Payroll deduction (at least quarterly payments) |
| Tax on Loan | None if repaid on schedule |
| Job Loss | Balance due by tax filing deadline of that year |
The True Cost: Lost Growth
While you repay yourself with interest, the real cost is opportunity cost. A $20,000 loan for 5 years at 8% expected market return costs roughly $9,000 in lost growth. Use our 401(k) loan calculator to see the true cost for your specific situation.
Alternatives to Consider First
- Emergency fund: 3-6 months of expenses in a savings account
- Home equity line of credit: Lower rates, tax-deductible interest
- Personal loan: No risk to retirement savings
- 0% APR credit card: For short-term needs under $10,000
Frequently Asked Questions
No. 401(k) loans are not reported to credit bureaus and do not appear on your credit report. However, if you default and the loan becomes a taxable distribution, the resulting tax debt could indirectly affect your finances.
Many plans allow multiple outstanding loans, but the total across all loans cannot exceed $50,000. Some plans limit you to one or two active loans at a time. Check your Summary Plan Description for your plan's specific rules.
You must repay the outstanding balance by your tax filing deadline (including extensions) for the year you leave. If you cannot repay, the remaining balance is treated as a distribution - subject to income tax and a 10% early withdrawal penalty if under 59 1/2.
Pavlo Pyskunov
Managing Director & Investment Fund Director
Pavlo Pyskunov analyzes employer-sponsored retirement plans using IRS publications and DOL Form 5500 filings, helping workers maximize their 401(k) savings through data-driven guidance.
Last updated: 2026-03-30