401(k) Loan Calculator
Limit, Repayments and the Real Cost

The lesser of 50% of your vested balance or $50,000. If half your vested balance is under $10,000, a plan may let you borrow up to $10,000 — plans don't have to offer this.

The $50,000 is also reduced by your highest outstanding loan balance in the previous 12 months. Not every plan offers loans; IRAs can't.

Your plan can require you to repay the outstanding balance. If you don't, it is treated as a distribution — taxable income for that year, and possibly the 10% additional tax if you are under 59½.

You can avoid that by putting the same amount into an IRA or another eligible plan by the due date (including extensions) of your tax return for that year.

It is cheap and quick — no credit check, and the interest goes to your own account — but it has real costs. The borrowed money misses market growth ($7,062 on $20,000 over 5 years at 10% returns, more than the $4,582 of interest you pay back), repayments come from after-tax pay, and leaving your job can turn it into a taxable distribution.

Many people also cut their contributions while repaying, which costs more than the loan itself.

Your plan sets it, and it must be commercially reasonable — many plans use the prime rate plus 1 or 2 points. The interest is paid into your own account, so a higher rate isn't lost money, but it is paid with after-tax dollars and taxed again when you later withdraw it from a traditional 401(k).

Payments must be made at least quarterly on a level schedule. If the loan falls out of compliance, the outstanding balance becomes a 'deemed distribution' — taxed as income and possibly subject to the 10% early tax — and you still have to keep repaying it.

Plans often allow a cure period, typically until the end of the quarter after the missed payment.