Educational estimates only — not financial or tax advice
401(k) Loan Calculator
Borrowing from your 401(k) is governed by IRS rule 72(p): your maximum loan is the lesser of a $50,000 leg (reduced by your 12-month high-water mark) and a vested-balance leg (50% of vested, with a $10,000 floor). This calculator applies the real rule, builds your repayment schedule, projects the true opportunity cost to retirement, simulates a job-loss default, and compares the 401(k) route against borrowing elsewhere.
Maximum loan under IRS 72(p)
Payment & amortization schedule
| # | Payment | Principal | Interest | Balance |
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True cost to retirement
| Year | No-loan balance | With-loan balance | Gap |
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Job-loss default simulator
401(k) loan vs borrowing elsewhere
How the IRS 72(p) maximum really works
A 401(k) loan is not a withdrawal: it is a loan from the plan to you that must satisfy IRC §72(p), or the balance is recharacterized as a taxable distribution. Plans are not required to offer loans, and a plan may impose tighter limits than the statute — always check your plan documents. The statutory ceiling has two legs, and the lower one wins:
- The $50,000 leg: $50,000 minus the excess (if any) of your highest outstanding plan-loan balance during the one-year period ending the day before the new loan, over your outstanding balance on the day of the new loan. Serial borrowers get bitten here: repaying a loan last month does not restore the full $50,000.
- The vested-balance leg: the greater of 50% of your vested accrued benefit or $10,000. The $10,000 floor is the part most online calculators omit.
- Subtract any current outstanding balance — the new loan plus what you still owe cannot exceed the ceiling.
Repayment discipline is statutory too: level amortized payments at least quarterly (most plans use monthly payroll deduction), repaid in full within 5 years — except a loan used to acquire your principal residence, which may run longer. Up to one year of suspension is allowed for a leave of absence, but the 5-year clock is not extended. Rules verified against IRS.gov primary sources (Deemed distributions — Participant loans; Retirement plans FAQs regarding loans; Issue Snapshot — Borrowing limits for participants with multiple plan loans; all under IRC §72(p)), checked 2026-10-11.
The real cost is not the interest
The most misunderstood fact about 401(k) loans: the interest rate is nearly irrelevant to your retirement balance, because the interest is credited to your own account. Borrowing $20,000 at 6% for 5 years means $386.66/month leaves your paycheck and the $3,199.35 of total interest lands in your 401(k) — no lender profits. The genuine costs are:
- Foregone compounding. The borrowed dollars leave the market. Even with every repayment reinvested, the early months of compounding are lost forever. In the worked example below, a $20,000 loan at 7% market returns leaves you $670.64 behind at payoff — a gap that grows to $3,639.85 by retirement 25 years later.
- Double-taxed interest. Repayments come from after-tax pay, and the interest portion is taxed again when withdrawn in retirement. The principal is not double-taxed (pre-tax in, taxed once out).
- Forfeited employer match. If repayments crowd out contributions — or your plan suspends matching while a loan is outstanding — you surrender an instant 50–100% return. Missing $150/month of match for 5 years at 7% costs $58,284.85 by retirement in the example below. This single factor usually dwarfs the interest rate.
- Job-separation risk. Leave (or lose) the job and the balance typically comes due fast; what you cannot repay becomes a deemed distribution — income tax plus 10% if you are under 59½.
Worked examples (computed by the engine)
Example 1: The IRS textbook case — prior loans shrink the $50,000 leg
Vested balance $100,000. Last year you borrowed $40,000 and still owe $33,322. The 12-month high-water mark ($40,000) minus what you owe ($33,322) = $6,678 shaved off the $50,000 leg, leaving a cap of $43,322. The vested leg allows max(50% of $100,000, $10,000) = $50,000. The binding leg is the $50,000 leg, and after subtracting what you still owe, the new loan can be at most $10,000. This is the IRS's own published example, and the calculator reproduces it to the dollar.
Example 2: Small balance — the $10,000 floor rescues you
Vested balance $15,000, no prior loans. The 50% leg gives only $7,500, but the $10,000 statutory floor lifts the vested leg to $10,000. The $50,000 leg allows the full $50,000, so the binding constraint is the vested leg: maximum new loan $10,000.
Example 3: Mid-career borrower — the vested leg binds
Vested balance $40,000, no prior loans. Vested leg: max(50% of $40,000, $10,000) = $20,000. $50,000 leg: $50,000. You may borrow up to $20,000.
Example 4: Monthly payment — interest you pay to yourself
Borrow $20,000 at 6% for 5 years, monthly payroll deduction. Payment = $386.66/month; total repaid $23,199.35, of which $3,199.35 is interest credited to your own 401(k) — not a lender's profit. Compare the amortization tab's schedule row by row.
Example 5: True cost — the gap that compounds for decades
Same $20,000 loan, 7% assumed market return, 25 years to retirement, 2.5% inflation. At payoff you are $670.64 behind where the account would have been; left to compound, that gap is $3,639.85 at retirement — $1,963.30 in today's purchasing power. Now add a $150/month employer match you forfeit while repaying: the match alone would have grown to $58,284.85, for a total retirement shortfall of $61,924.70 ($33,401.60 today). The interest rate on the loan barely matters; the match and the market return dominate.
Example 6: Default after a job loss — the tax bill
$15,000 still owed when you separate at age 45 in the 22% bracket and cannot repay by the tax deadline. Deemed distribution: $3,300.00 ordinary income tax + $1,500.00 additional 10% tax = $4,800.00. You keep $10,200.00 of the $15,000. At age 62 the penalty disappears and the same default costs $3,300.00.
Example 7: 401(k) loan vs credit card — run both numbers
Need $20,000 for 5 years. Credit card at 18%: $507.87/month, $10,472.03 of interest paid to the lender and gone forever. 401(k) loan at 6%: $386.66/month, $3,199.35 of interest paid to yourself, and an account shortfall of $1,963.30 in today's dollars — cheaper, IF you keep contributing and keep the full match. Forfeit $150/month of match and the 401(k) route costs $33,401.60 in today's dollars: then the credit card wins. The comparison tab does this math live.
401(k) loan FAQs
How much can I borrow from my 401(k)?
Under IRS rule 72(p), the most any new plan loan can be is the lesser of (1) $50,000 minus the excess of your highest outstanding loan balance in the prior 12 months over your current outstanding balance, or (2) the greater of 50% of your vested balance and $10,000 — minus what you still owe. The IRS's own example: a $100,000 vested balance with a $40,000 high-water mark and $33,322 still outstanding leaves a cap of $43,322, so the new loan can be at most $10,000. Your plan may set a lower limit, and not every plan offers loans at all.
What is the $10,000 minimum exception?
If 50% of your vested balance is tiny, the law still lets the plan lend up to $10,000. With a $15,000 vested balance, 50% is only $7,500 — but the $10,000 floor raises your 72(p) maximum to $10,000 (assuming no prior loans). This calculator applies the floor automatically.
How quickly must a 401(k) loan be repaid?
Generally within 5 years, in level amortized payments at least quarterly — most plans collect monthly through payroll deduction. The one big exception: a loan used to buy your principal residence can stretch beyond 5 years (check the Loan term tab's home-purchase option). Miss the schedule and the unpaid balance becomes a deemed distribution.
What interest rate will I pay — and where does the interest go?
Your plan sets the rate, commonly prime plus 1–2%. The key detail: the interest goes back into your own 401(k) account — you are literally paying yourself. Example: a $20,000 loan at 6% over 5 years costs $386.66 per month, and the $3,199.35 of total interest lands in your own account, not a lender's pocket.
Is 401(k) loan interest taxed twice?
Partly, yes — this is the one genuine double-taxation in the deal. You repay the loan (including the interest) with after-tax dollars from your paycheck, and that interest is taxed again as ordinary income when you withdraw it in retirement. The principal is not double-taxed: it went in pre-tax and comes out taxed once.
What is the real cost of a 401(k) loan?
Not the interest — that stays in your account. The real cost is foregone compounding on money that left the market. Example: borrow $20,000 for 5 years at 6% while the market returns 7% and you retire in 25 years. At payoff you are $670.64 behind; compounded to retirement that gap is $3,639.85, or $1,963.30 in today's dollars. Add any employer match you forfeit and the number gets much bigger.
What happens to my 401(k) loan if I leave my job?
Most plans require full repayment shortly after separation — often within 60–90 days, though some plans let payroll deduction continue. Any unpaid balance becomes a taxable distribution. You get a cure: under current law you can repay it or roll it into an IRA by your tax-return due date (including extensions) for the year you left, and avoid the tax hit.
What taxes and penalties apply if I default?
The outstanding balance is treated as distributed to you: ordinary income tax plus a 10% additional tax if you are under 59 and 1/2. Example: $15,000 outstanding, 22% bracket, age 45 → $3,300.00 income tax + $1,500.00 penalty = $4,800.00 gone, leaving $10,200.00. At 62 the same default costs only $3,300.00 (no 10% penalty).
Should I take a 401(k) loan or a withdrawal?
A loan you repay on schedule triggers no tax and no penalty — a withdrawal before 59 and 1/2 triggers income tax plus the 10% additional tax immediately. Loans are also capped by 72(p) ($50,000 absolute ceiling) while withdrawals are limited only by your balance. If you cannot confidently repay — especially with a job change possible — a loan can quietly become the withdrawal you were trying to avoid.
Is a 401(k) loan cheaper than a credit card?
Compare true costs, not just rates. A $20,000 credit-card balance at 18% over 5 years costs $10,472.03 in interest paid to the lender ($507.87/mo). The 401(k) loan's account shortfall in the example above is only $1,963.30 in today's dollars — but that assumes you keep contributing and keep your full employer match. If repayments force you to give up $150/month of match, the 401(k) route costs $33,401.60 in today's dollars by retirement, and the credit card wins. Use the comparison tab with your own numbers.
Can I keep contributing to my 401(k) while repaying the loan?
Usually yes, and you should — pausing contributions is where the hidden damage lives. Miss $150/month of employer match for the 5 years you repay, and at 7% returns with 25 years to retirement that match alone would have grown to $58,284.85, pushing your total shortfall to $61,924.70 ($33,401.60 today). Some plans suspend matching while a loan is outstanding; check your plan documents.
Do I need a credit check to borrow from my 401(k)?
No. There is no application, no credit inquiry, and no reporting to the credit bureaus — the loan is secured by your own vested balance. The trade-off: defaulting does not hurt your credit score, it just converts the balance into a taxable distribution (see the default tab).
Methodology & limits
Max loan: reduction = max(highest12 − currentOut, 0);
leg50 = 50000 − reduction; legVested = max(0.5 × vested, 10000);
maxNew = max(min(leg50, legVested) − currentOut, 0) — the IRC §72(p)(2)(A)
formula, verified against the IRS's published example ($100,000 vested / $40,000
high-water mark / $33,322 outstanding → $10,000 new loan).
Amortization: standard level-payment formula, payments rounded to cents, final payment adjusted so the balance reaches exactly $0. Monthly or quarterly frequencies.
Opportunity cost: month-by-month simulation. The no-loan path keeps the borrowed slice invested at the assumed return; the with-loan path removes it at t=0 and reinvests each full repayment (principal + interest) at the same return. The gap at payoff is compounded to retirement at the assumed return and discounted to today's dollars at the inflation rate. Optional missed match is a monthly annuity over the loan term, future-valued to retirement.
Default: outstanding balance × marginal rate, plus 10% of the balance if age < 59.5. Comparison: alternative loan amortized at its APR; 401(k) true cost = retirement shortfall in today's dollars.
Limits: results are educational estimates, not financial, tax, or legal advice. Tax law and plan rules change; your plan may be stricter than the statute. Figures assume constant returns — real markets are not constant.
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Disclaimer: This calculator provides educational estimates based on IRC §72(p) as published on IRS.gov (checked 2026-10-11). It is not financial, tax, or legal advice. 401(k) plans are not required to offer loans and may set lower limits; consult your plan administrator and a qualified tax professional before borrowing.
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