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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.
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
How long will it be before I receive my funds?
It usually takes about one week to get funds from a 401(k) loan. However, in some cases it can take upwards of three weeks or more.
How do I take out a 401(k) loan if I'm unemployed?
Most solo or self-employed 401(k) plans can be structured to allow loans or hardship distributions. Just make sure you follow all of the rules to avoid paying costly penalties.
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