Borrowing from your 401(k) means repaying principal plus interest to your own account —but the money is not invested while it is out of the market. This tool estimates your monthly payment, total interest, lost growth, and the true cost (interest plus opportunity cost).
Updated May 5, 2026 Reviewed by the Best 401(k) Calculator Editorial Team · Aligned with IRS Notice 2025-82
Quick links: Considering borrowing instead of cashing out? Compare the alternative with the Early Withdrawal Calculator to see exact tax and penalty cost. For full plan rules and smarter routes, read our 401(k) Cash Out Guide, or project long-term impact with the main 401(k) calculator.
Enter your loan terms and an expected long-term portfolio return. Results are illustrative —your plan may use different rounding or rules.
Subject to IRS and plan limits (often max $50,000 or 50% of vested balance).
Used for context; maximum loan depends on vested balance and plan rules.
Annual rate used to estimate opportunity cost on the borrowed principal.
| Month | Payment | Principal | Interest | Remaining balance |
|---|
Not every plan allows loans. When they do, the IRS caps the amount you can borrow, and your employer’s plan sets repayment frequency, available terms, and whether you can have more than one loan at a time.
Generally, you may borrow up to 50% of your vested balance, with a $50,000 maximum lookback rule tied to outstanding loan balances in the prior 12 months. If your vested balance is below $20,000, some plans allow a loan up to $10,000. Your plan’s loan policy controls the details.
An outstanding loan often becomes due quickly after separation. Amounts not repaid in time may be treated as a taxable distribution and, depending on age and exceptions, may trigger an additional 10% tax. That risk is a major downside versus a personal loan from a bank.
A plan loan avoids credit underwriting and pays interest back into your account, which feels attractive. A personal loan charges interest to a lender and may carry a higher APR, but it does not reduce your invested retirement balance. Use this calculator’s true cost line to compare the long-term impact of forgone growth against typical personal-loan interest.
Before borrowing from your plan, consider whether an early withdrawal or other alternatives might cost less in the long run. If you must access funds, understanding the average returns you would miss can help you weigh the opportunity cost.
The interest rate on a 401(k) loan looks attractive — usually prime + 1% (around 9.5% in 2026), with the interest paid back into your own account. But that headline number ignores the largest hidden cost: opportunity cost on the borrowed balance while it sits outside the market. To put real numbers behind it, we modeled a typical scenario using this calculator's engine.
Assumptions for the table below: $20,000 loan, 5-year repayment, 9.5% loan APR (interest paid to your own account), and 7% market return on what would have stayed invested. We compare the "if you had not borrowed" trajectory against "after borrowing and full repayment" trajectory at the 5-year mark.
| Scenario | Year 1 | Year 3 | Year 5 |
|---|---|---|---|
| If you never borrowed (counterfactual) | $21,400 | $24,500 | $28,051 |
| Borrowed + repaid in full (5-year loan) | $4,164 (only repayments invested) | $13,170 | $23,330 |
| Net 5-year cost (in lost balance) | −$4,721 (about 24% of the original loan amount) | ||
What this tells you: Even when you "pay yourself back" the interest, a 5-year $20K loan still costs roughly $4,700 in lost retirement growth — equivalent to about 24% of the original loan. Stretch the loan to 10 years (mortgage-style for a primary residence loan), and the gap doubles. If you can keep contributing to your 401(k) on top of loan repayments, the gap shrinks; if you reduce or pause contributions during the loan, the gap widens dramatically.
Methodology: Loan repayments calculated with standard amortization formula at 9.5% APR. Counterfactual scenario assumes the original $20K stayed invested and grew at 7% annually compounded monthly. Repayment scenario assumes monthly repayments are reinvested at the same 7% return. Excludes fees, taxes, and salary-deferral disruption. Source: Best401kCalculator.com Editorial Team modeling, May 2026.
Despite the opportunity cost, 401(k) loans can still be the right call in specific situations. They beat almost every alternative when used for a short-term liquidity bridge with high confidence of stable employment. They are almost always wrong when used to fund consumption or to bail out a deeper financial problem.
This is the single most underestimated risk of a 401(k) loan. Before SECURE Act (2017), you typically had only 60-90 days after separation to repay the entire outstanding balance. The 2017 changes extended the deadline to "the due date of your federal tax return for the year of separation, including extensions" — which can be up to October 15 of the following year.
That extra time helps, but it does not eliminate the risk. Most laid-off workers cannot suddenly produce $20,000+ in cash, especially when they have just lost their income. If you cannot repay by the deadline:
For a typical $20K balance held by someone in the 22% federal bracket and the 5% state bracket, an unrepaid loan after separation can trigger roughly $7,400 in combined federal tax + state tax + 10% penalty — on top of losing the retirement balance itself. Run your specific scenario through the Early Withdrawal Calculator to see your exact tax impact.
Most "401(k) loan" articles compare it only to credit cards or hardship withdrawals. We modeled the four most realistic alternatives a homeowner with stable employment would actually consider, using $25,000 borrowed for 5 years with 2026 published average rates.
| Borrowing Option | Typical APR | Total 5-Yr Interest Paid | Tax Treatment | Hidden Cost |
|---|---|---|---|---|
| 401(k) loan | ~9.5% (prime + 1%) | $6,470 (paid to yourself) | Not tax-deductible | ~$5,900 lost market growth |
| HELOC (variable) | ~9.0% | $6,140 (paid to lender) | Interest may be deductible if used for home improvement | Home as collateral; rate can rise |
| Personal loan (good credit) | ~12.5% | $8,580 (paid to lender) | Not deductible | Lower limits; may impact credit utilization |
| Credit card balance transfer | ~21% (after 0% promo) | $15,000+ if not paid in promo period | Not deductible | 3-5% transfer fee; credit score impact |
What this tells you: The "interest cost" of a 401(k) loan is misleading because the interest goes to your own account — but the opportunity cost on the principal (~$5,900 in lost growth on a $25K loan over 5 years) is the real expense. For a homeowner with strong equity and stable income, a HELOC for home-related borrowing often beats a 401(k) loan because the interest may be tax-deductible. For everything else, the choice usually depends on job stability: stable employment favors the 401(k) loan, anything else favors the personal loan or HELOC.
After modeling dozens of borrowing scenarios with this calculator, our editorial team's working framework is simple: a 401(k) loan is the right answer about 15% of the time — and almost always for one of three specific reasons.
All three of these are true:
(1) Your employment is rock solid (12+ months expected tenure).
(2) The loan funds an investment or unavoidable expense, not consumption.
(3) You can keep contributing the full employer-match amount during repayment.
You own a home with 20%+ equity and the funds are for home improvement or other tax-deductible use.
A HELOC keeps your retirement compounding intact and often has tax-deductible interest for qualifying uses. The trade-off is putting your home up as collateral.
Your job is anything less than completely stable, or the loan is for consumption.
A higher APR on a personal loan is usually cheaper than a deemed distribution after job loss. The personal loan also keeps your retirement balance fully invested.
Bottom line: If you find yourself "needing" to borrow from retirement to fund regular spending, that is a signal a budget reset is more valuable than the loan. The single biggest predictor of future retirement success is not borrowing against the future.
IRS rules generally cap loans at the lesser of $50,000 or 50% of your vested account balance (with adjustments if you had other plan loans). If your vested balance is under $20,000, some plans allow up to $10,000. Your plan’s SPD lists the exact rules.
Many plans require repayment shortly after your employment ends. Unpaid balances may be deemed a taxable distribution. If you are under 59½, an additional 10% tax may apply unless an exception applies. Timing rules are strict —confirm with your plan and a tax professional.
Most 401(k) loans are not reported to credit bureaus, so repayment usually does not help or hurt your FICO score in the traditional sense. A deemed distribution is a tax issue, not a line item on your credit report like a bank loan default.
You pay interest back into your own 401(k) account. That is why the “interest cost” differs from a bank loan —but money removed from investments still forgoes potential market returns, which this tool labels opportunity cost.
It depends on interest rates, job stability, and how much long-term growth you might give up. A personal loan may cost more in cash interest but leaves your 401(k) fully invested. Compare true cost here with the APR and term of a personal loan offer.