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
- Maximum: 50% of vested balance, up to $50,000
- Repayment: Up to 5 years (15 years for home purchase in some plans)
- Interest rate: Usually prime + 1%
- Job loss: Outstanding balance due by tax filing deadline
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.