Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
401(k) loan calculator
Use this calculator to estimate how much it can cost to borrow from your retirement savings.
Borrowing money from your 401(k) plan can be a way to get a low-interest loan, but it comes at the risk of your savings — and potential tax penalties. Get an idea of how much a 401(k) loan might cost in monthly payments by using this calculator.
401(k) loan calculator
See how much you'll pay
|Loan terms (in years)|
Don't want to dip into your retirement? Consider these personal loans
Avoid potentially harming your retirement — or paying a penalty and taxes if you default — by checking out these personal loans.
401(k) loans under the CARES Act
During the coronavirus outbreak, you can still borrow from your 410(k) plan. And as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the federal government made some changes to how you can borrow from it. Until September 23, 2020, the maximum 401(k) loan amount has been bumped from $50,000 up to $100,000.
And loans that have payments due between March 27 and December 31, 2020, can also be delayed for up to a year. Be careful though, interest still accumulates during the suspension — that means your payments will likely be larger once it's up.
What’s the average interest rate on a 401(k) loan?
Loan terms and rates are determined by your plan administrator — your employer, in other words. The interest rates on most 401(k) loans is prime rate plus 1%.
Since you’re borrowing your own money, the interest isn't paid to a lender. Instead, the interest is paid back into your 401(k) account.
How long will I have to pay off a 401(k) loan?
If your retirement plan permits loans, you have up to five years to repay your 401(k) loan. The only time the term is longer is if you're using it to buy a home. And there's no penalty for early repayment.
When should I take out a 401(k) loan?
Most employer-sponsored 401(k) retirement plans allow employees to borrow against their accounts, but employers can restrict what you're allowed to use the funds for. You're also putting your retirement savings at risk, so be careful about what you're borrowing for regardless of if there's a restriction.
Situations that may necessitate a 401(k) loan include:
- Funeral expenses
- Making a down payment on a house
- Covering costs to prevent foreclosure or eviction
- Paying education costs for yourself or your family members
What am I losing by borrowing from my retirement savings?
There are consequences from borrowing from your retirement savings, consider these drawbacks before you take out a loan.
- You'll lose out on potential gains. You lose the opportunity to benefit from investments on any money you borrow. While the interest you pay offsets some of that, it doesn't always make up for the lost growth.
- You pay more in taxes. Under other circumstances, you don't have to pay taxes on money you deposit into your 401(k). However, the payments you make toward a 401(k) loan will be with income that has already been taxed — and you'll get taxed again when you make qualifying withdrawals.
- Contributions might not be possible. If you can’t afford regular contributions to your 401 (k) during your loan term, you could lose thousands on your retirement — especially if your employer matches contributions. Your employer might not allow contributions until the loan is paid back.
- Losing your job can be even more costly. If you leave your job for any reason, you'll have to pay back your loan before your federal income taxes are due for the year. If you don't, it'll be reported as a distribution and you'll potentially face taxes and an early withdrawal penalty.
- Defaults are treated as distributions. That means you'll face the same taxes and potential penalties as if you were to withdraw the funds.
- The funds aren't protected from bankruptcy. Once you borrow the funds from your 401(k), they're no longer protected if you file for bankruptcy — and the court can take them to pay your creditors.
A 401(k) loan comes with a low interest rate and a smooth application process. But you only have five years to pay back your loan, you miss out on the potential growth of your investment and leaving your job can mean facing steep penalties if you can't pay the loan back immediately.
For more — potentially less risky options — read our guide to personal loans.
Frequently asked questions
More guides on Finder
Best bank accounts for freelancers and the self-employed
Compare the five best bank accounts for self-employed professionals and freelancers.
How to start a solo 401(k)
A retirement plan for self-employed individuals but may come with high administrative fees.
Does a car loan affect your mortgage application?
Find out how to increase your borrowing power and get approved for a mortgage even if you have a car loan.
Pension plan vs. 401(k)
Both are retirement plans, but they’re vastly different.
What is Yearn Finance?
Learn how to use DeFi aggregator Yearn Finance to earn interest on your cryptocurrency.
T. Rowe Price review
Features, fees and complaints to consider before you apply for a T. Rowe Price account.
What influences a property’s value?
From supply and demand through to location, facilities and planned infrastructure projects, there are plenty of factors that can influence property value.
Getting a home loan on maternity leave
Some lenders will approve a home loan even though you’re not receiving a permanent income. However, you’ll need to undergo some assessments.
Best and worst states to retire
The best and worst states to retire based on affordability; crime and poverty; culture; weather and location; and health and wellbeing.
Different types of mortgage loans
A 101 guide covering the types of mortgage loans every homebuyer should know.
Ask an Expert