401(k) Loan Calculator 2026

A 401(k) loan calculator estimates the borrowing limit, repayment schedule, and retirement impact of taking a loan from an employer-sponsored 401(k) plan. A 401(k) loan allows participants to borrow from their vested retirement account balance under rules defined by the Internal Revenue Service in Internal Revenue Code Section 72(p). 

Federal rules cap borrowing at the lesser of $50,000 or 50% of the vested balance, with standard repayment through level amortized payments over up to 5 years, while primary-residence loans may allow longer terms depending on the plan. Interest paid on the loan is credited back to the borrower’s own retirement account rather than a lender. 

This calculator determines the maximum 401(k) loan amount, estimates monthly payments for any loan size and term, models the opportunity cost of removing funds from tax-deferred investment growth, and evaluates retirement readiness scenarios such as a $400,000 401(k) balance at age 62.

How Do I Calculate How Much I Can Borrow From My 401(k)?

The IRS sets the maximum 401(k) loan at the lesser of: (1) $50,000 minus the highest outstanding loan balance in the prior 12 months, or (2) 50% of the vested account balance. Most plans also set a minimum of $1,000. A participant with a $120,000 vested balance and no prior loans can borrow up to $50,000. A participant with a $60,000 vested balance can borrow up to $30,000 (50% of $60,000).

Maximum Loan = Lesser of [$50,000 − (Highest Prior 12-Month Loan Balance)] OR [50% × Vested Account Balance]

Maximum 401(k) Loan Amount by Vested Balance – 2026

The 50% rule applies to vested balance, not the total account balance. Unvested employer contributions do not count toward the borrowing base. If the participant took a $15,000 loan in the prior 12 months and repaid it in full, the $50,000 cap is reduced to $35,000 ($50,000 − $15,000). Verify your plan’s specific terms with your HR department or plan administrator.

The Prior-12-Month Reduction Rule Explained

The IRS reduces the $50,000 maximum by the highest outstanding loan balance the borrower held at any point in the prior 12 months. The reduction applies even if the prior loan was repaid in full. This rule prevents rapid repeated borrowing up to the full $50,000 limit.

Example: A participant with a $200,000 vested balance took a $30,000 loan 8 months ago and repaid it 4 months ago. The prior-12-month highest balance was $30,000. Maximum new loan: $50,000 − $30,000 = $20,000, even though the prior loan is fully repaid and the vested balance easily supports $50,000.

What is the Interest Rate If You Borrow Money From Your 401(k)?

The interest rate on a 401(k) loan is set by the plan and must be a commercially reasonable rate. Most plans use the Prime Rate plus 1 percentage point. The Prime Rate as of March 2026 is 7.50%, making the most common 401(k) loan rate 8.50% per year. Unlike a bank loan, the interest paid goes back into the borrower’s own 401(k) account, effectively paying interest to yourself.

401(k) Loan Interest Rate – Prime + 1% History

Prime Rate source: Federal Reserve H.15 Selected Interest Rates. The Prime Rate has been stable at 7.50% since September 2024. 401(k) loan rates set by individual plan documents, verify your specific rate with your plan administrator. Some plans use Prime + 2% or a fixed rate.

Monthly Payment Table – $50,000 Loan at Various Rates and Terms

Monthly Payment = P × [r(1+r)^n] ÷ [(1+r)^n − 1]

Where P = loan principal, r = monthly interest rate (annual rate ÷ 12), n = number of monthly payments. Example: $50,000 at 8.50% for 5 years: r = 0.085/12 = 0.007083; n = 60. Monthly payment = $50,000 × [0.007083 × (1.007083)^60] ÷ [(1.007083)^60 − 1] = $1,023.22.

Is It Worth Taking a Loan From a 401(k)?

A 401(k) loan is worth considering only in specific circumstances: when no lower-cost borrowing option exists, when the loan will be repaid within the 5-year term, when the participant’s job is secure, and when the amount borrowed represents a small portion of the total balance. The primary cost of a 401(k) loan is not the interest rate, it is the lost compound growth on the borrowed funds during the repayment period.

True Cost of a $30,000 401(k) Loan – Opportunity Cost Analysis

The interest rate on a 401(k) loan is not the true cost. The real cost is the investment returns lost on the withdrawn funds during the loan period. A $30,000 loan withdrawn from a 401(k) earning 7% annually loses the growth on that $30,000 for the duration of the loan.

Assumes 7% annual return, loan repaid in exactly 5 years with level monthly payments, repaid principal immediately resumes earning 7%. Opportunity cost is the permanent reduction in balance at retirement from the temporary withdrawal. Actual returns vary — past performance does not guarantee future results.

The double-taxation problem: 401(k) loan repayments are made with after-tax dollars. The borrowed money was originally contributed pre-tax and will be taxed again when withdrawn in retirement. Repaying the loan with after-tax dollars means those dollars are effectively taxed twice, once when earned to make the repayment, and once when distributed in retirement as ordinary income.

401(k) Loan vs. Personal Loan vs. Home Equity – Cost Comparison

Home equity loan interest is deductible only if the loan proceeds are used to buy, build, or substantially improve the home securing the loan, and the taxpayer itemizes deductions on Schedule A. The deductibility of HELOC interest for other purposes was eliminated by the Tax Cuts and Jobs Act of 2017.

When a 401(k) Loan Makes Sense – and When It Does Not

A 401(k) loan makes sense in 4 situations: the borrower has no other lower-cost option, the loan avoids a high-interest debt (credit card above 20%), the job is stable and repayment is manageable within the paycheck deduction system, and the loan represents less than 25% of the total 401(k) balance.

A 401(k) loan does not make sense in 5 situations: the borrower has or may have a job change or layoff in the next 5 years (the entire outstanding balance becomes due by the tax filing deadline of the departure year), the loan will fund consumption expenses rather than asset acquisition, the 401(k) balance is small and the loan represents more than half, the borrower is within 10 years of retirement (lost growth is irreplaceable in a short time horizon), or a home equity loan at a lower after-tax rate is available.

What Happens to a 401(k) Loan If You Leave Your Job?

When a participant separates from employment with an outstanding 401(k) loan, the entire unpaid loan balance becomes due by the tax return filing deadline (including extensions) for the year of separation. If not repaid by that deadline, the outstanding balance is treated as a taxable distribution, subject to ordinary income tax and the 10% early withdrawal penalty if the participant is under age 59½.

The Tax Cuts and Jobs Act of 2017 changed the repayment deadline from 60 days to the tax filing deadline (April 15 plus any extension) for the year of job separation. Before this change, participants who lost a job had only 60 days to repay, making default nearly certain for most. The extended deadline reduces but does not eliminate the default risk.

Job Separation Loan Default Scenario – $25,000 Outstanding Balance

The deemed distribution is also reported on Form 1099-R. The participant can avoid the taxable event by rolling over the outstanding loan balance to an IRA by the extended tax filing deadline, but this requires having available cash equal to the outstanding loan balance to deposit into the IRA, which is often difficult in a job-loss scenario.

Rollover offset strategy: Under IRS rules, a participant who receives a deemed distribution offset (the outstanding loan amount reduces the rollover check from the plan) can contribute cash equal to the loan offset amount to an IRA by the tax filing deadline to avoid the taxable event. This requires $25,000 in liquid cash at the time of rollover, a significant barrier for most workers who borrowed from the 401(k) precisely because they needed liquidity.

401(k) Loan vs. Hardship Withdrawal: Which Is Better?

A 401(k) loan is almost always better than a hardship withdrawal when both options are available. A loan is repaid, the money returns to the account. A hardship withdrawal permanently removes the funds and triggers ordinary income tax plus the 10% early withdrawal penalty for participants under age 59½. The after-tax cost of a hardship withdrawal on $20,000 is typically $6,000–$8,000 in immediate taxes and penalties, with no possibility of return.

SECURE 2.0 Act (signed December 2022) eliminated the mandatory 6-month contribution suspension after a hardship withdrawal for plan years beginning after December 29, 2022. Plans must amend to reflect this change by the applicable amendment deadline.

Qualifying Reasons for a Hardship Withdrawal

The IRS defines 7 safe harbor hardship withdrawal reasons under Treasury Regulation 1.401(k)-1(d)(3): medical expenses for the employee or family member, purchase of a primary residence, post-secondary education expenses for the next 12 months, preventing eviction from or foreclosure on the primary residence, burial or funeral expenses, repair of casualty damage to the primary residence, and expenses for FEMA-declared disasters.

Can I Retire at 62 With $400,000 in My 401(k)?

Retiring at 62 with $400,000 in a 401(k) is possible but tight for most households. Using the 4% withdrawal rule, a $400,000 balance supports $16,000 per year in inflation-adjusted distributions. Combined with Social Security, which at age 62 is approximately 70% of the full retirement age benefit, total income may reach $28,000–$36,000 per year depending on Social Security earnings history. This meets the needs of low-cost-of-living retirees but is below the median US household retirement budget.

$400,000 at Age 62 – Annual Income Projection

The 4% Withdrawal Rule – What It Means for $400,000

The 4% rule, developed from the Trinity Study (1998), states that a retiree can withdraw 4% of the initial portfolio balance per year, adjusted for inflation, and have a high probability of the portfolio lasting 30 years. At $400,000, the initial annual withdrawal is $16,000. The rule assumes a balanced portfolio of approximately 50–60% stocks and 40–50% bonds.

Retiring at 62 presents 2 challenges for the 4% rule. First, the retirement horizon may be 30–35 years, longer than the original Trinity Study modeled. A longer horizon reduces the probability of the portfolio surviving. Second, the 401(k) balance is entirely in tax-deferred accounts, meaning every dollar withdrawn is taxable as ordinary income, reducing after-tax purchasing power.

How Long Will $400,000 Last at Different Withdrawal Rates?

*At 3% withdrawal and 7% return, the portfolio grows faster than it is depleted, making it theoretically indefinite. These projections assume constant annual returns, actual returns fluctuate year to year. Sequence-of-returns risk (poor returns in early retirement years) can significantly shorten portfolio longevity compared to these averages.

Social Security at 62 vs. 67 vs. 70 – The Claiming Decision

Claiming Social Security at 62 reduces the monthly benefit by approximately 30% compared to claiming at the full retirement age (FRA) of 67 for people born in 1960 or later. Delaying to age 70 increases the benefit by 8% per year beyond FRA, producing a benefit approximately 77% higher than the age-62 benefit.

FRA = Full Retirement Age. For individuals born in 1960 or later, FRA is 67. Break-even ages compare cumulative lifetime benefits. If the retiree lives past the break-even age, delaying is mathematically superior. Healthier, longer-lived individuals benefit more from delaying to 70.

Early Withdrawal Tax on 401(k) at Age 62 – What to Expect

Withdrawals from a traditional 401(k) at age 62 avoid the 10% early withdrawal penalty, the penalty applies only before age 59½. However, all traditional 401(k) distributions at any age are taxed as ordinary income. 

A retiree withdrawing $16,000 per year from a 401(k) at age 62 with $14,400 in Social Security income (85% of which may be taxable federally) has a combined gross income of approximately $28,640. After the $15,750 standard deduction (2025), taxable income is approximately $12,890, likely in the 10% or 12% federal bracket. Virginia residents, for example, owe no state tax on Social Security but owe 5.75% Virginia income tax on the 401(k) withdrawal above $17,000 in VA taxable income.

401(k) Loan Repayment Rules: The 5-Year Limit and Home Purchase Exception

IRS rules require 401(k) loans to be repaid in substantially level payments over a term no longer than 5 years. One exception exists: loans used to acquire the participant’s principal residence may be repaid over a longer term set by the plan, typically 10, 15, or 25 years, matching conventional mortgage terms. The plan must allow this extended term, and the loan must be for purchase, not refinance or home improvement.

Refinancing or home equity borrowing does not qualify for the extended repayment term — only purchase of the primary residence qualifies. A participant who borrows $50,000 from a 401(k) to refinance an existing mortgage must repay over 5 years, not 25. The distinction matters significantly for monthly cash flow: a $50,000 loan at 8.50% over 5 years costs $1,023/month; the same loan over 15 years costs $492/month.

Does Taking a 401(k) Loan Affect Your Future Contributions?

Taking a 401(k) loan does not legally require the employee to stop making new contributions. However, many employees reduce or suspend contributions while repaying a loan because the combination of loan repayment deductions and regular contribution deductions strains take-home pay. Suspended contributions during repayment forfeit both the pre-tax contribution benefit and any employer match, compounding the opportunity cost of the loan.

Employer Match Forfeit During Suspended Contributions

An employee earning $75,000 who contributes 6% to receive a full 100% employer match on the first 6% receives $4,500 per year in employer match. If the employee suspends contributions for 3 years while repaying a 401(k) loan, the employee forfeits $13,500 in employer match, in addition to the opportunity cost of the borrowed funds. This is the most significant hidden cost of 401(k) loans for employees who would otherwise reduce contributions.

Compound growth calculation: $13,500 compounding at 7% for 30 years = $13,500 × (1.07)^30 = $102,700. This is the long-term retirement wealth impact of suspending contributions and forfeiting 3 years of employer match to manage a 401(k) loan repayment.

How to Use the 401(k) Loan Calculator on USATaxCalculator.com

Use the 401(k) loan calculator by entering 4 fields: vested 401(k) balance, desired loan amount, interest rate (default Prime+1% = 8.50%), and repayment term in years (1–5 for general loans; up to 25 for home purchase loans if the plan allows). The calculator returns maximum borrowing limit, monthly payment, total interest, opportunity cost projection, and estimated retirement balance impact.

• Step 1: Enter vested balance, the total vested amount in the 401(k) excluding any unvested employer contributions.
• Step 2: Enter desired loan amount, capped at the lesser of $50,000 or 50% of vested balance (automatically flagged by the calculator).
• Step 3: Enter interest rate, default is 8.50% (Prime+1% as of March 2026). Update to match the rate in the plan document for accuracy.
• Step 4: Enter repayment term, 1 to 5 years for general loans; up to 25 years if the plan allows the home purchase exception.
• Step 5: Enter assumed annual return, the expected average annual return on the invested 401(k) balance. Default is 7%. This powers the opportunity cost calculation.
• Step 6: Review results, monthly payment, total interest paid, opportunity cost over the loan term, and the projected balance at retirement age with and without the loan.

More Free Calculators on USATaxCalculator.com

USATaxCalculator.com provides 5 additional tools for retirement planning and tax calculation:

• Dividend Tax Calculator – Calculate your tax on dividends income
• Virginia Tax Calculator – Calculate your income tax on your virginia income
• Bonus Tax Calculator – Calculate your tax on the bonus income you have received
• US Income Tax Calculator – Estimate total federal income tax on retirement income combined with 401(k) distributions
• Paycheck Calculator – Calculate take-home pay impact of changing 401(k) contribution rates

FAQs About 401(k) Loan Calculator 2026

Q1. How do I calculate how much I can borrow from my 401(k)?

The IRS limits 401(k) loans to the lesser of 2 amounts: $50,000 minus the highest outstanding loan balance held in the prior 12 months, or 50% of the vested account balance. To calculate the maximum: first find the vested balance (excluding unvested employer contributions). Calculate 50% of that amount. Compare it to $50,000 reduced by any prior-12-month loan balance. The lower of the two figures is the maximum loan. Example: $90,000 vested balance, no prior loans, the maximum is $45,000 (50% of $90,000, because $45,000 is less than $50,000). Example: $200,000 vested balance, $20,000 prior-year loan now repaid, the maximum is $30,000 ($50,000 − $20,000, because $30,000 is less than 50% of $200,000 = $100,000).

Q2. Is it worth taking a loan from a 401(k)?

A 401(k) loan is worth taking only when 4 conditions are met: no better-rate borrowing option exists, the job is stable for the full repayment period, the loan amount is under 25% of total balance, and the purpose is to avoid a higher-cost debt or immediate financial crisis. The primary costs are not the interest rate (interest goes back to the borrower) but the lost compound growth on the borrowed funds and the double-taxation of repayments, made with after-tax dollars on funds already contributed pre-tax and taxable again at withdrawal. A $30,000 loan taken at age 45 and repaid over 5 years creates a permanent $12,000–$15,000 reduction in balance at retirement age 65, even after full repayment, due to compound growth lost during the loan period.

Q3. Can I retire at 62 with $400,000 in my 401(k)?

Retiring at 62 with $400,000 is financially viable for low-to-moderate-spending households but strained for those with above-average expenses. Using the 4% withdrawal rule, $400,000 supports $16,000 per year in initial withdrawals, adjusted annually for inflation. Combined with early Social Security at 62 (approximately 70% of the full-retirement-age benefit), total income may reach $26,200 to $34,000 per year before taxes. At a 5% withdrawal rate, the portfolio lasts approximately 27 years at a 5% annual return, potentially to age 89. The biggest risks are healthcare costs before Medicare eligibility at 65, inflation over a 30+ year retirement, and sequence-of-returns risk if markets decline in the first few years of retirement when the portfolio is largest.

Q4. What is the interest rate if you borrow money from your 401(k)?

Most 401(k) plans set the loan interest rate at Prime Rate plus 1 percentage point. The Prime Rate as of March 2026 is 7.50%, making the most common 401(k) loan rate 8.50% per year. This rate is applied to the outstanding loan balance and the interest payments go back into the borrower’s own 401(k) account, not to a bank. Some plans use Prime + 2% or a fixed rate specified in the plan document. The IRS requires only that the rate be commercially reasonable. TIAA uses Prime + 1% as of early 2026. Origination fees of $75–$125 may also apply depending on the plan and loan type. Verify the exact rate and any fees with your plan administrator before borrowing.

Q5. What happens if I don’t repay my 401(k) loan?

Failure to repay a 401(k) loan results in a deemed distribution, the IRS treats the unpaid balance as a taxable withdrawal in the year of default. The defaulted amount is added to taxable income for that year and taxed at ordinary income rates. If the participant is under age 59½, a 10% early withdrawal penalty also applies on the defaulted amount. Example: a $20,000 defaulted balance for a 45-year-old in the 22% bracket generates approximately $4,400 in federal income tax plus $2,000 in early withdrawal penalty, a $6,400 cost, plus state income tax. The defaulted amount is also permanently removed from the retirement account. The IRS allows a cure period: missed payments can be made up by the end of the calendar quarter following the missed payment before default is declared.

Q6. Can I take multiple loans from my 401(k)?

Whether an employee can have multiple outstanding 401(k) loans at the same time depends entirely on the plan document, the ERISA rules and IRS regulations allow plans to permit multiple loans, but plans are not required to do so. Most plans allow only one outstanding loan at a time. Plans that allow multiple loans must still apply the aggregate $50,000 and 50%-of-vested-balance limits across all outstanding loans combined. Taking a second loan while the first is outstanding reduces the available amount: if a participant has a $15,000 outstanding loan and a $120,000 vested balance, the maximum additional loan is $35,000 ($50,000 cap − $15,000 existing balance), not $50,000.

Q7. Are 401(k) loan repayments tax deductible?

401(k) loan repayments are not tax deductible. Repayments are made with after-tax dollars and do not appear anywhere on the federal tax return. The interest portion of repayments is also not deductible, unlike mortgage interest on a home loan, which may be deductible for itemizers. This non-deductibility is one component of the double-taxation issue with 401(k) loans: the repayment dollars were taxed as income when earned, the borrowed money was originally contributed pre-tax, and the full account balance (including the repaid loan principal) will be taxed again as ordinary income when distributed in retirement.

Q8. Can I borrow from a 401(k) to buy a house?

Yes, a 401(k) loan to purchase a primary residence qualifies for the home purchase exception, which allows repayment over a longer term than the standard 5-year maximum. The plan must specifically permit this extended term, and the loan must be for the purchase of the participant’s principal residence, not refinancing, paying down an existing mortgage, or home improvement. The IRS maximum of $50,000 or 50% of vested balance still applies to home purchase loans. Many financial planners caution against using 401(k) loans for down payments because it reduces retirement savings, introduces job-separation risk, and the loan interest is not tax-deductible (unlike mortgage interest on a conventional home loan for itemizers).

Q9. What is the minimum amount I can borrow from a 401(k)?

The IRS sets no federal minimum loan amount for 401(k) loans. The minimum is set by the plan itself. Most plans set a minimum of $1,000. Some plans set minimums of $2,500 or $5,000. Small loans of under $1,000 are generally not cost-effective because origination fees ($75–$125 in many plans) represent a significant percentage of the borrowed amount, a $75 fee on a $500 loan is a 15% upfront cost before any interest. If the loan amount needed is less than the plan minimum, a hardship withdrawal (if eligible) or an emergency savings account is a better source for very small funding needs.

Q10. Does a 401(k) loan affect my credit score?

A 401(k) loan does not appear on any credit report and has no effect on the borrower’s credit score. The loan is between the employee and the retirement plan, it is not reported to Equifax, Experian, or TransUnion. No credit check is performed to qualify for a 401(k) loan. Repayments are deducted directly from the paycheck by the employer and are not reported as account payment history. The non-reporting is an advantage for borrowers with poor credit who cannot qualify for a conventional personal loan at a reasonable rate, a 401(k) loan is available regardless of credit history. However, the absence of credit reporting also means that repaying the loan builds no credit history.