How the 401(k) Loan Calculator Works
This calculator uses the standard US amortizing loan formula to compute your monthly payment, then enforces IRS §72(p) borrowing limits — capping the loan at the lesser of 50% of your vested balance or $50,000 (reduced by any prior outstanding balance in the last 12 months). The amortization schedule shows exactly how each payment splits between principal and interest. The opportunity cost tab models the lost compounding growth of the borrowed amount from the date of the loan through your projected retirement.
Loan Planner Tab
Enter your vested balance, any prior outstanding loan balance, the desired loan amount, interest rate, term (1–5 years), and pay frequency. See your monthly payment, per-paycheck amount, total interest, and payoff date — alongside a live term comparison across all 4 standard terms.
Amortization Schedule Tab
View the full payment schedule in monthly or annual view. The annual view includes a stacked bar chart showing how the principal-to-interest ratio shifts over the life of the loan — earlier payments carry more interest, later payments more principal.
Opportunity Cost Tab
Models the difference between the borrowed amount compounding at your expected market return versus your repayments compounding back in. The gap is then projected forward to your retirement horizon, showing the total wealth impact of the loan beyond just the interest paid.
Payment Formula Used
Monthly payment is calculated using the standard US amortizing loan formula: M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1], where P is the principal, r is the monthly interest rate (APR ÷ 12), and n is the number of monthly payments. This is the same formula used for mortgages and auto loans.
US IRS 401(k) Loan Rules (IRC §72(p))
The Internal Revenue Code sets strict limits on 401(k) loans. Violating these rules — or failing to repay on time — converts the loan into a taxable distribution with potential penalties. Here are the key rules every US participant should know before borrowing.
Maximum Loan Amount
The lesser of (a) 50% of your vested account balance, or (b) $50,000, minus the highest outstanding loan balance in the prior 12 months. Plans may set lower limits than the IRS maximum.
Maximum Loan Term
5 years for general-purpose loans. Loans used to purchase a primary residence may qualify for longer terms under some plan documents. Repayments must be made at least quarterly.
Job Loss and Deemed Distribution
If you leave your employer, most plans require full repayment of the outstanding balance within 60–90 days. Unpaid balances become deemed distributions, taxable as ordinary income plus a 10% early withdrawal penalty if under age 59½.
No Credit Check or Application
401(k) loans do not require a credit check, do not appear on your credit report, and typically close within a few business days. This makes them accessible but also easy to take without fully weighing the retirement cost.
Interest Paid to Yourself
The interest you pay on a 401(k) loan goes back into your own retirement account — not to a bank. However, you pay this interest with after-tax dollars, and those dollars are taxed again at withdrawal, creating the double taxation problem.
No Tax or Penalty While Current
As long as your loan is in good standing and repayments are made on schedule, there is no federal income tax or early withdrawal penalty on the borrowed amount. The loan is only taxable if it defaults or is not repaid after a triggering event.
Should You Borrow from Your 401(k)?
✓ Potential Advantages
- No credit check or impact on your credit score.
- Interest is paid back to your own account, not a lender.
- Typically lower interest rate than unsecured personal loans or credit cards.
- Fast access to funds — often within days.
- No taxes or penalties if repaid on schedule.
✕ Significant Disadvantages
- Borrowed funds stop compounding — a permanent opportunity cost.
- Repayments are made with after-tax dollars (double taxation).
- Job loss can trigger immediate full repayment or a taxable default.
- Interest is not tax-deductible (unlike home equity loans).
- May reduce or halt new contributions during repayment.
- Psychological ease of access can encourage over-borrowing.
A 401(k) loan can be a reasonable short-term solution for financial emergencies when alternatives are worse (high-interest debt, early withdrawal). But it should be a last resort, not a first option. The compounded opportunity cost over 20–30 years can be several times the loan amount itself.
401(k) Loan Calculation Examples
Example 1: Home repair emergency
A participant with a $90,000 vested balance borrows $20,000 at 9.5% APR for 3 years. Monthly payment: $639. Total interest paid back to the account: $1,012. Opportunity cost at 7% return projected 20 years: approximately $28,000 in lost retirement wealth.
Example 2: Maximum IRS loan
A participant with a $200,000 vested balance borrows the maximum IRS-allowed $50,000 at 10.5% APR for 5 years. Monthly payment: $1,074. Total interest paid back: $14,434. Opportunity cost at 7% return over 25 years to retirement: approximately $126,000 in lost compounding growth.
Example 3: Prior loan reduces new cap
A participant with a $150,000 vested balance had a $15,000 outstanding loan balance at its highest point in the last 12 months. The IRS $50,000 cap is reduced to $35,000. The 50% vested cap is $75,000. Their maximum new loan is therefore $35,000 — $15,000 less than the standard cap.
Alternatives to a 401(k) Loan
Before borrowing from your retirement account, consider these alternatives. Each has trade-offs, but none carry the retirement compounding cost or job-loss risk of a 401(k) loan.
Home Equity Loan / HELOC
✓ Interest may be tax-deductible; lower rates for qualified borrowers.
✕ Requires home ownership and sufficient equity; secured by your home.
Personal Loan
✓ No retirement account impact; fixed terms and payments.
✕ Higher interest rates than 401(k) loans; credit check required.
Emergency Fund / Savings
✓ Zero interest cost; no debt created; retirement untouched.
✕ Requires prior savings; may not cover large unexpected expenses.
0% APR Credit Card
✓ Interest-free if paid off within the promotional period (12–21 months).
✕ Requires good credit; high rate if balance remains after promo period.
Hardship Withdrawal
✓ No repayment required if qualifying hardship criteria are met.
✕ Taxable as income + 10% early penalty if under 59½; permanent retirement loss.
Roth IRA Contributions
✓ You can withdraw Roth IRA contributions (not earnings) penalty-free at any time.
✕ Only available if you have a Roth IRA with sufficient contribution basis.
Frequently Asked Questions
How much can I borrow from my 401(k)?+
Under IRS rules (IRC §72(p)), you can borrow the lesser of 50% of your vested account balance or $50,000. The $50,000 cap is further reduced by the highest outstanding loan balance you had in the prior 12 months. For example, if your vested balance is $60,000, your max loan is $30,000 (50%). If your vested balance is $150,000, your max is $50,000 (the dollar cap).
What is the maximum term for a 401(k) loan?+
The IRS generally limits 401(k) loan repayment to 5 years. The one exception is loans used to purchase your primary residence, which may have longer terms under some plan documents. Most plans require at minimum quarterly repayment installments, and many deduct payments directly from your paycheck.
What interest rate does a 401(k) loan charge?+
The interest rate is set by your plan and is typically the prime rate plus 1% to 2%. As of 2024, the US prime rate is approximately 8.50%, making typical 401(k) loan rates between 9.50% and 10.50%. Importantly, this interest is paid back to yourself — into your own 401(k) account — not to a lender.
Is the interest on a 401(k) loan tax deductible?+
No. Interest paid on a 401(k) loan is not deductible for federal income tax purposes, even if the loan proceeds are used for a purpose that would normally generate deductible interest (such as home improvements). This is one of the notable disadvantages compared to a home equity loan.
What happens to my 401(k) loan if I leave my job?+
If you leave your employer — whether by resignation, termination, or layoff — most plans require you to repay the outstanding loan balance within 60 to 90 days. If you cannot repay it, the outstanding balance is treated as a deemed distribution: it becomes taxable as ordinary income, and if you are under age 59½, an additional 10% early withdrawal penalty applies.
Does a 401(k) loan hurt my retirement savings?+
Yes, in two ways. First, the borrowed money is no longer invested and therefore stops compounding — this is the opportunity cost. Second, if you reduce or stop contributions while repaying the loan, you miss out on employer match and continued growth. Over 25 years, a $20,000 loan could cost $60,000–$100,000 or more in lost retirement wealth, depending on market returns.
Is there double taxation on 401(k) loan repayments?+
Yes, for traditional 401(k) accounts. You repay the loan with after-tax dollars (income that has already been taxed). When you later withdraw those funds in retirement, they are taxed again as ordinary income. The loan principal is effectively taxed twice. This does not apply to the interest portion — that is simply money moved from your pocket back into your account.
Can I have two 401(k) loans at the same time?+
Many plans permit multiple outstanding loans, but the IRS aggregate limit still applies. Your total outstanding 401(k) loan balance across all loans cannot exceed the lesser of 50% of your vested balance or $50,000 (reduced by your highest prior balance in the last 12 months). Check your plan documents for the number of simultaneous loans allowed.
Is a 401(k) loan better than a personal loan or credit card?+
It depends on your situation. A 401(k) loan has no credit check, the interest goes back to your own account, and the rate is typically lower than credit cards. However, the opportunity cost (lost investment growth), job-loss risk (forced repayment or taxable distribution), and double taxation make it less attractive than it may appear. A personal loan or home equity loan may be preferable if the interest rate is competitive and you have stable employment.
Do 401(k) loan repayments count toward my annual contribution limit?+
No. Loan repayments are not treated as elective deferrals and do not count toward your $23,000 annual contribution limit (2024). You can repay a loan and simultaneously make the full employee contribution to your plan. However, some participants reduce contributions during repayment to manage cash flow, which indirectly reduces total account growth.
Estimates & Assumptions
- Monthly payment uses the standard US amortizing loan formula with monthly compounding at the annual interest rate divided by 12.
- IRS §72(p) loan maximum is calculated as the lesser of 50% of vested balance or $50,000, reduced by the highest prior outstanding balance in the last 12 months that you enter. Actual plan limits may be lower.
- Opportunity cost assumes the loan amount would have compounded at your specified market return rate with no additional contributions during the loan term. Repayments are modelled as re-entering the account on a monthly basis and compounding at the same rate.
- Deemed distribution tax and penalty consequences of default are described qualitatively but not quantified in this calculator, as they depend on your specific income tax bracket and state tax laws.
- This calculator is for US 401(k) plans only. 403(b) and governmental 457(b) plans follow similar but not identical rules.
This calculator is for educational and estimation purposes only. Actual loan terms, maximum amounts, and plan rules vary by employer plan document. Consult your plan administrator for plan-specific rules and a certified financial planner or tax advisor before borrowing from your retirement account.