401(k) Loan Calculator

Borrowing from your 401(k)

How a 401(k) loan payment is calculated

A 401(k) loan is repaid in equal installments that cover both principal and interest. Federal tax law requires substantially level amortization with payments at least quarterly, and a term of no more than five years unless the loan is used to buy your principal residence (IRC 72(p)(2)(B) and (C)). When your plan collects repayments through payroll, the number that matters is the amount that leaves each paycheck.

The calculator spreads the loan over the number of paychecks in your term and applies the annual rate divided by the number of paychecks in a year. A $15,000 loan at 8% over five years costs $140.17 per biweekly paycheck: 130 payments with $3,222.26 of interest in total. Repaid monthly, the same loan is $304.15 a month with $3,248.70 of interest. If your plan figures interest a different way, your loan statement can differ from these results by a few cents or dollars.

Your plan sets the interest rate, not the IRS. Department of Labor rules require participant loans to bear a reasonable rate of interest, one that gives the plan a return in line with what commercial lenders charge on similar loans (29 CFR 2550.408b-1). Use the rate in your plan's loan terms for the most accurate payment.

How much you can borrow from your 401(k)

The IRS sets the ceiling, and your plan can set a lower one. Under IRC 72(p)(2)(A), a new loan plus everything you already owe the plan cannot exceed the lesser of:

• $50,000, reduced by the difference between your highest loan balance during the 12 months before the new loan and your loan balance on the day of the new loan, or
• the greater of $10,000 or half of your vested account balance.

With a $40,000 vested balance, the most you can borrow is $20,000. The 12-month look-back matters if you have borrowed before. In an IRS example, a participant with an $80,000 vested balance borrowed $27,000 eight months earlier and still owes $18,000. The total allowed is the lesser of $41,000 ($50,000 minus the $9,000 paid down) or $40,000 (half the balance), so the second loan can be up to $22,000. Paying off the first loan first would only raise the limit to $23,000, because the $27,000 peak still counts for 12 months.

The $10,000 floor is not the whole story. Department of Labor rules let a plan count no more than 50% of your vested balance as security for all of your loans (29 CFR 2550.408b-1(f)(2)), so a loan secured only by your account is limited to half of the balance. That is why the calculator shows a second limit: with $15,000 vested, the IRS figure is $10,000, but a loan secured only by the account is $7,500. A plan is not required to offer loans at all, and it may require your spouse to consent to a loan.

Limits under IRC 72(p)(2)(A) and 29 CFR 2550.408b-1(f)(2) with no other loans in the past 12 months, and never more than the vested balance itself. Your plan's own terms may be lower.

What a 401(k) loan does to your paycheck

The IRS loan FAQ notes that loan repayments are not plan contributions. They do not lower your taxable wages the way pre-tax 401(k) deferrals do, so each repayment reduces your take-home pay by its full amount. On a biweekly schedule, the $140.17 repayment in the example comes to about $303.70 a month out of your checking account. If you want to keep saving while you repay, run your contribution rate through the paycheck after 401(k) calculator and the 401(k) contribution calculator to see both deductions together.

Payment per paycheck on a $10,000 loan at 8%, our calculation with standard amortization. Change the inputs above for your own loan.

Loan or hardship withdrawal?

If your plan offers both, they work very differently. A loan does not depend on hardship: you do not have to show a need, and it is not a taxable distribution as long as it follows the amount, term and repayment rules. A hardship distribution has to be due to an immediate and heavy financial need and is limited to the amount needed to meet it. It is subject to income tax unless it consists of Roth contributions, it may also be subject to the 10% additional tax on early distributions, and you cannot repay it to the plan or roll it over. That 10% additional tax generally applies to distributions received before age 59 1/2.

The cost of a loan shows up in your paycheck instead. Before you borrow, check that the repayment fits your budget for the whole term, because missed payments can still turn the loan into a taxable distribution.

Missed payments, leaving your job and taxes

A loan in default is generally treated as a taxable distribution of the entire outstanding balance, called a deemed distribution, and it is taxed like an actual distribution, including any early distribution tax. A plan may give you a cure period that runs to the end of the calendar quarter after the quarter in which you missed a payment. In the IRS example, a participant who pays in March but misses the June payment is in default at the end of June, and the loan becomes a distribution at the end of September. Our pension withdrawal tax calculator estimates the tax on a distribution.

If you leave your employer, your plan may offset the unpaid balance against your account. Unlike a deemed distribution, a plan loan offset is treated as an actual distribution for rollover purposes and may be eligible for rollover. When the offset happens because you left the job or the plan ended, you have until your tax return due date, including extensions, to roll that amount over instead of the usual 60 days.

Two situations let repayments pause. A plan may suspend repayments during a leave of absence of up to one year, although the loan still has to be repaid within its original term, so the installments after you return go up. A plan may also suspend repayments while you perform military service. In the Treasury regulation example, a $40,000 loan repaid at $825 a month rises to $1,130 a month after a 12-month unpaid leave so it still ends on schedule.