401(k) Loan Calculator
What a 401(k) loan costs by retirement, including the part that does the damage: the contributions and employer match most borrowers stop while repaying.
How this is calculated
The legal cap under IRC §72(p)(2) is the lesser of $50,000 and the greater of half your vested balance or $10,000. Type in more and the calculation quietly uses the cap and says so. Where the $10,000 floor is the only thing making the loan possible, the result says that too, because plenty of plans cap at half the balance and ignore the floor entirely. One more subtraction sits inside §72(p)(2)(A)(i): the $50,000 is cut by the highest loan balance you had outstanding at any point in the preceding 12 months, so a loan you cleared eight months ago still shrinks what you can take today.
The repayment is a straight amortisation at the rate and frequency you set. Level payments aren't a house convention here. They're a condition of the thing: the IRS wants substantially level amortisation at least quarterly, and a loan that drifts from that schedule stops being a loan and becomes a taxable distribution.
The account effect runs two versions of your balance side by side. One leaves the borrowed money invested. The other takes it out and puts each repayment back as it arrives. At 8% on the loan against 7% expected in the market, the second version finishes higher. Most articles assert the opposite without checking.
The suspended contributions are where the damage actually sits: your own 6% and the employer match on it, unpaid for the whole term, compounded forward to the year you retire.
Not modelled. Origination and maintenance fees, which many plans charge and which the ERISA fee disclosure buries near the back. The 12-month lookback in §72(p)(2)(A)(i) that cuts the $50,000, because this page never asks you what you had outstanding on any earlier loan. Any gap between the money arriving and the first deduction. Tax on the interest, real but small. Two loans running at once. Plan rules stricter than the statute, which are common. State tax, which this site never models.
The interest is the least of it
Two answers circulate about borrowing from a 401(k), and both of them miss. One says the loan is free because you pay the interest to yourself, which happens to be true and almost entirely beside the point. The other says it costs you every dollar the money would have earned in the market, which is arithmetic that nobody seems to have run. At 8% on the loan against 7% expected, the repayments put back slightly more than the borrowed money would have made.
So a loan repaid on schedule leaves the balance about where the market would have left it. Those 8% repayments see to that.
What empties the account is the money you stop putting in while you repay. The repayment and your deferral come out of the same paycheck, and hardly anyone can carry both, so the 6% goes to zero and stays there until the loan clears. That is the whole argument. Everything below is detail.
How do you work out what you can borrow and what it takes from each paycheck?
Take the lesser of two ceilings: $50,000 reduced by any loan you have had in the last twelve months, or half your vested balance. Then amortise what you borrow over five years at your plan's rate. IRC §72(p)(2)(A) writes both ceilings, and it is a lesser-of test, not a sequence of deductions.
- First ceiling. Start at $50,000. Subtract the amount by which your highest loan balance in the previous twelve months exceeded what you still owe today. Never borrowed before, and this ceiling stays at $50,000.
- Second ceiling. Halve your vested balance. Employer money you have not vested in is not yours and does not count. If that half comes to less than $10,000, the statute lets the plan use $10,000 instead, though plenty of plans ignore that floor.
- Take the lesser of the two. That is what you may borrow. The order matters: the twelve-month lookback belongs to the first ceiling only, and applying it to the second one after the event produces a smaller answer than the statute allows.
- Divide your plan's annual rate by the payments in a year. 8% over 26 fortnightly deductions is 0.3077% a period.
- Amortise. With P borrowed, r the periodic rate and n payments, each payment is P × r ÷ (1 − (1 + r)−n). Five years at 26 a year is 130 payments, and five years is the statutory ceiling unless the loan buys your main home.
Work it with the page's own defaults. A $120,000 vested balance halves to $60,000, so the second ceiling is $60,000; with no loan in the previous twelve months the first stays at $50,000, and the lesser of the two is $50,000 available. Borrow the $30,000 the form suggests and the arithmetic runs $30,000 × 0.003077 ÷ (1 − 1.003077−130) = $280 a fortnight, $36,444 repaid altogether, and $6,444 of interest that lands in your own account instead of a bank's.
The lookback is the step people skip, and it bites hardest on someone who has been careful. Clear a $50,000 loan in full last spring and the first ceiling this autumn is $50,000 less that highest balance, which is nothing at all. Half your vested balance may be far larger and it makes no difference, because the test takes the lesser. The plan is applying the statute correctly, and nobody mentions it until you ask why the answer came back zero.
Five paused years cost more than the loan ever will
Five years of a 6% contribution on an $85,000 salary, plus the employer match on it, is roughly $38,000 that never reaches the account. Compound that at 7% to a retirement in your mid-sixties and the number is several times larger again. The interest, meanwhile, is sitting in your own balance where you put it.
The match is the cruellest part. That money belonged to your employer and was conditional on one thing: you contributing. Stop the 6% and you stop the match with it. Skipped match doesn't wait around for you. It never arrives at all, and no later contribution year lets you go back and buy the match you missed while the loan was running.
Tick the pause box above and watch the headline figure move. For most people it dwarfs the interest and the $38,000 of principal put together, by a margin that isn't remotely close.
Leaving the job turns the balance into a taxed withdrawal
While you're employed and repaying, the loan isn't a taxable event at all. Leave owing money and it becomes one. The unpaid balance is offset against your account and treated as a distribution: ordinary income tax, plus the 10% penalty if you're under 59½ and no exception fits your situation.
There's a rescue, and it's a hard one. You have until the tax-filing deadline for that year, extensions included, to move an equivalent sum into an IRA and undo the whole thing. Read that again. It means finding the entire outstanding balance in cash, in the month you lost your income.
So job security decides it. If there's a real chance you won't be there in three years, price that in before you borrow, and be honest about the odds. The withdrawal calculator shows what the tax and the 10% would come to on the amount you'd still owe.
A 401(k) loan doesn't touch your tax return until it goes wrong
Borrowing from your own plan isn't a distribution, so no Form 1099-R arrives, nothing goes on your return, and there's no tax to pay on the money you receive.
That answer holds for the whole life of a 401(k) loan in good standing, and it stops holding the day the loan defaults.
Repayments come out of pay that has already been taxed. Your elective deferral is subtracted before federal income tax is worked out; a loan repayment isn't a deferral, it's you handing back money you already hold, so payroll takes it from what's left after tax. The IRS page on plan loans doesn't say that. It sets out the five-year term and the at-least-quarterly payment rule and what happens when you miss one, and it's silent on whether repayments are pre-tax or after-tax, so treat the paragraph you just read as reasoning about payroll and not as a quotation from the IRS.
Which brings us to the claim that a 401(k) loan is taxed twice. Half of it is true. The interest genuinely is: you pay it from taxed income, it lands in a pre-tax account, and it's taxed again when you eventually withdraw it, so on the $30,000 example above the double layer falls on $6,444. The principal isn't taxed twice, because the $30,000 came to you untaxed in the first place and only gets taxed once, on the way out, like every other pre-tax dollar in the account. People who say the whole repayment is double-taxed are wrong, and so are the people who say none of it is.
Interest deductibility is the other half of the question, and the honest answer is that I can't point you at anything that settles it. The IRS page on plan loans doesn't mention deductibility at all. Not once, anywhere on it. What I'd say is that the interest isn't really a cost: it leaves one of your pockets and arrives in another, so there's no payment to a lender to deduct, and I'd want a preparer's sign-off before anyone claimed it.
The loan reaches your return in exactly one situation, and that's when it stops being a loan. Miss the schedule, or leave the job owing money, and the outstanding balance becomes a distribution with income tax and the 10% on it under 59½, which is what the withdrawal calculator prices for your own income.
Against a hardship withdrawal it wins almost every time
Dismissing loans outright is bad advice.
- Against a cash-out. No contest. A withdrawal costs tax plus the 10% penalty on the day, and it can never be replaced, because next year's contribution limit is still only the limit. A repaid loan costs neither.
- Against high-interest debt. Paying yourself 8% to clear a card at 24% is better arithmetic by a wide margin, provided the spending that built the balance has stopped.
- For a short, known need, where the money goes back quickly and the 6% never pauses.
It's a poor answer when the job is uncertain, when the money funds ongoing spending instead of a one-off need, or when the 6% stops for five years to service it. Two of those three describe most people who ask. I could be wrong about the proportions, since nobody publishes what borrowers do with the money, but the pattern in the questions people ask is hard to miss.
Frequently asked questions
How much can I borrow from my 401(k)?
The lesser of $50,000 and the greater of half your vested balance or $10,000, under IRC §72(p)(2). A vested balance of $60,000 allows $30,000; a balance of $200,000 still allows only $50,000; and a small balance still allows $10,000 even when half of it comes to less. Your plan can be stricter than that. It doesn't have to offer loans at all.
Does a 401(k) loan cost you money?
Less than most articles claim, and in a different way from the one they describe. Repay on schedule with a loan rate at or above your expected return and the account itself ends up no worse, because the repayments rebuild what the market would have added. The real cost turns up when you cut contributions while repaying, which most borrowers do, since the repayment and the contribution leave the same paycheck. At 6% of an $85,000 salary that's a lot of foregone match.
Is a 401(k) loan taxable?
Not while it's in good standing. It becomes taxable if you default, or if you leave the job with a balance outstanding. The unpaid amount is then treated as a distribution, taxed as ordinary income, and hit with the 10% penalty as well if you're under 59½.
What happens to my 401(k) loan if I quit or get laid off?
The outstanding balance usually falls due almost immediately, and if it isn't repaid it's offset against your account as a taxable distribution. You then have until the tax-filing deadline for that year, extensions included, to roll an equivalent amount into an IRA and avoid the tax. That means finding the full balance in cash at the exact moment your income stopped.
Is a 401(k) loan better than a withdrawal?
Almost always, if repayment is realistic. A withdrawal before 59½ costs income tax plus the 10% penalty straight away and can never be put back. A loan costs neither while you're repaying it. The comparison only flips when you're likely to leave the job first, which turns the loan into exactly the withdrawal you were trying to avoid.
Is the interest on a 401(k) loan double-taxed?
The interest is, and only the interest. You pay it with money that's already been taxed, and in a pre-tax account it gets taxed again on the way out. Principal isn't double-taxed: it went in pre-tax and comes out taxed once. The effect is real and small, and it's nowhere near the $38,000 of skipped contributions in the example above.