How this calculator works
A 401(k) loan is repaid from your paychecks, and the interest goes back into your own account. Plans usually charge the prime rate plus 1–2%. The IRS caps the loan at $50,000 or half your vested balance, whichever is less (up to $10,000 even if half is less, if the plan allows), and the term at five years unless the money buys your main home. The cost to watch is the market growth the borrowed money misses, so the calculator compares the account with and without the loan; and remember the repayments come from after-tax pay.
- Payment per paycheck = amount × r × (1 + r)^n ÷ ((1 + r)^n − 1), where r = rate ÷ paychecks a year and n = paychecks in the term.
- IRS maximum = the lesser of $50,000 or half your vested balance (or up to $10,000 if half is less, when the plan allows).
- Growth given up = the loan amount grown at your expected return − the repayments reinvested as they come in.
Worked example
With these inputs: vested 401(k) balance $40,000; loan amount $10,000; loan interest rate 8.5%; repayment term 5; paid Every two weeks; expected yearly return on the account 7%.
The result is payment each paycheck $94.55, with monthly equivalent $204.85 and interest you pay back to yourself $2,291.16. If you leave the job, most plans want the balance repaid by your tax-filing due date for that year; what's left is taxed as income, plus a 10% penalty under age 59½.
401(k) loan rules in brief
The IRS lets a plan lend you up to $50,000 or 50% of your vested balance, whichever is less, and some plans allow up to $10,000 even when half the balance is smaller. The loan has to be repaid within five years in at least quarterly payments, unless it buys your main home. Not every plan offers loans, and each plan sets its own rate, usually the prime rate plus 1–2%.
Repayments come straight out of your paycheck, after tax. If you leave the job, most plans want the balance repaid by your tax-filing due date for that year; whatever is left is treated as a distribution, taxed as income, and hit with a 10% penalty if you're under 59½.
The real cost of a 401(k) loan
The interest goes back into your own account, so the cost isn't the interest. It's the growth the borrowed money misses while it's out of the market. When the plan's rate is above what the account would have earned, the account comes out slightly ahead, as in the example at 7%. At a 10% return the same loan leaves the account $563.18 behind. The repayments also come from after-tax pay, and that money is taxed again when you withdraw it in retirement.
The term table shows the per-paycheck payment and interest for 1 to 5 years. A shorter term costs more per paycheck but gets the money back to work sooner.
Alternatives to check first
For a short-term gap, an emergency fund is cheaper than any loan. Paying off cards? Compare a 401(k) loan with a balance transfer or a debt consolidation loan. And check the payment fits your paycheck budget before you sign.
Sources
Frequently asked questions
How much is the payment on a $10,000 401(k) loan?
At 8.5% over 5 years it's $94.55 every two weeks (130 payments) or $205.17 a month if repaid monthly. Total interest, paid back into your account: about $2,291.
How much can I borrow from my 401(k)?
The lesser of $50,000 or half your vested balance; some plans allow up to $10,000 even if half is less. With $40,000 vested, the limit is $20,000.
How long do I have to pay back a 401(k) loan?
Up to five years, with payments at least every quarter (most plans take them from every paycheck). A loan used to buy your main home can run longer.
Does the interest on a 401(k) loan go back to me?
Yes, it's paid into your own account. The cost is the market growth the borrowed money misses, and the fact that you repay with after-tax pay.
What happens to a 401(k) loan if I quit?
Most plans want it repaid by your tax-filing due date for that year. Any unpaid balance becomes a taxable distribution, plus a 10% penalty if you're under 59½.