401(k) Loan Calculator: Know the Real Cost Before You Borrow
Calculate your monthly payment, total interest, opportunity cost, and the true long-term impact of borrowing from your 401(k) — before you sign anything.
401(k) Loan Calculator — 2026
Payment · True Cost · Early Withdrawal · Repayment Accelerator
IRS 401(k) Loan Limits: You may borrow the lesser of $50,000 or 50% of your vested balance. Loans must be repaid within 5 years (except home purchase loans). Defaulting triggers taxes + 10% early withdrawal penalty.
401(k) Loan Calculator: What It Costs to Borrow From Yourself
Borrowing from your 401(k) looks attractive on the surface. The interest rate is low. You’re paying yourself back. There’s no credit check, no bank approval, and the money arrives fast. Every one of those statements is true — and none of them tell the full story.
A 401(k) loan calculator exists to surface what the sales pitch omits: the investment growth your account loses while money is out of the market, the double taxation that applies to every interest payment, and the cliff-edge consequences if you leave your job before the loan is repaid. These are real costs that don’t appear on your loan paperwork, and they can easily exceed the stated interest rate by a factor of two or three.
That’s not an argument against 401(k) loans categorically. For many Americans, they are the most practical option in a genuine financial emergency. But the decision deserves full numbers — which is exactly what this calculator provides.
How a 401(k) Loan Works: The IRS Rules Every Borrower Must Know
The IRS permits 401(k) plan loans under specific conditions. Not every plan offers them — participation is voluntary for employers — but when they do, the following rules apply uniformly regardless of your plan provider.
Loan Limits: The Lesser of $50,000 or 50% of Your Vested Balance
If your vested balance is $80,000, your maximum loan is $40,000. If it is $200,000, your maximum is $50,000 — the IRS cap regardless of balance size. Some plans allow lower limits. The key word is vested — unvested employer contributions do not count toward your borrowing capacity.
Repayment Term: 5 Years Maximum (with One Exception)
Standard 401(k) loans must be repaid within five years through substantially level payments made at least quarterly. The one exception: loans used to purchase your primary residence may have a longer repayment period at the plan’s discretion. Missing this timeline converts the outstanding balance into a taxable distribution subject to ordinary income tax and, if under 59½, a 10% penalty.
Interest Rate: Typically Prime Rate Plus 1%
The IRS requires a “reasonable” interest rate — most plans use the Prime Rate plus one percentage point. In 2026, with the Prime Rate around 8.5%, that puts most 401(k) loan rates at approximately 9.5%. Crucially, this interest is paid back to your own account — you’re paying interest to yourself, not a bank.
Job Separation Triggers Immediate Repayment
This is the rule that catches most borrowers off guard. If you leave your employer — voluntarily or through layoff — your outstanding 401(k) loan balance becomes due by the federal tax filing deadline for that year (including extensions). If you cannot repay, the balance is treated as a distribution: ordinary income tax plus 10% penalty if under 59½. This creates serious risk for anyone whose employment is not fully secure.
No New Contributions While Loan Is Active (Check Your Plan)
Some plans suspend your ability to make new 401(k) contributions while a loan is outstanding. Others allow continued contributions. This detail matters enormously for your long-term retirement trajectory — if your plan suspends contributions, you also lose any employer match during the loan period.
| Feature | 401(k) Loan | Early Withdrawal |
|---|---|---|
| Maximum Amount | 50% of vested balance or $50,000 | Any amount |
| 10% Penalty | No (if repaid on time) | Yes (under age 59½) |
| Income Tax Now | No | Yes — full amount taxed |
| Repayment Required | Yes — within 5 years | No |
| Interest Paid To | Your own account | N/A |
| Job Loss Risk | Yes — balance due immediately | No ongoing obligation |
| Retirement Impact | Moderate (opportunity cost) | Severe (permanent loss) |
The True Cost of a 401(k) Loan: What the Interest Rate Doesn’t Tell You
The most common misconception about 401(k) loans is that the only cost is the interest rate. Because you pay interest back to yourself, many borrowers assume the loan is essentially free. It is not — and the gap between the stated cost and the real cost can be substantial.
Cost 1: Lost Compound Growth
When you take a 401(k) loan, the borrowed money leaves the market. That capital stops compounding. A $30,000 loan at a time when your account earns 7% annually costs you approximately $11,900 in lost growth over five years — money that will never be recovered because compounding requires time and it cannot go backward.
Cost 2: Double Taxation on Interest
Here is the mechanism most financial commentary glosses over. When you repay your 401(k) loan, you use after-tax dollars. Those after-tax dollars then sit in your traditional 401(k) account, where they will be taxed again as ordinary income when you withdraw them in retirement. The interest portion of your repayment is taxed twice — once when you earn it, and again when you eventually take it out of the account.
Cost 3: Market Timing Risk
Taking a loan during a market dip and repaying it during a bull market means buying back into your account at higher prices than you left. This is the reverse of dollar-cost averaging and can quietly inflate the true cost of borrowing beyond what any calculator shows.
The Bottom Line: For a $30,000 loan at 9.5% repaid over 5 years, the stated interest cost is about $7,500 — but the true economic cost including lost growth and double taxation typically runs $15,000–$22,000 depending on market returns and your tax bracket. Use the True Cost tab above to calculate your specific numbers.
When a 401(k) Loan Actually Makes Sense
Despite the real costs, 401(k) loans are the right answer in specific situations. Here is an honest framework for evaluating whether borrowing from your retirement account is the best available option.
Situations Where a 401(k) Loan Is Defensible
Avoiding high-interest debt: If the alternative is a payday loan, credit card cash advance, or personal loan above 18%, a 401(k) loan at 9.5% with interest returning to your own account comes out ahead economically. The math requires running both scenarios, which the True Cost tab enables.
Bridging a short-term gap: If you need $10,000 for two to three months and have absolute certainty of repaying quickly, the lost compounding is minimal and the loan functions more like a short-term line of credit against your own savings.
Job stability is high: The job-separation repayment risk is the most dangerous feature of a 401(k) loan. If your position is secure and your industry is stable, this risk is manageable. If your employment carries any meaningful uncertainty, the calculus shifts sharply against borrowing.
Situations Where a 401(k) Loan Is a Mistake
Non-emergency discretionary spending: Vacations, home improvements that could be delayed, or consumer purchases funded by a 401(k) loan are poor uses of retirement capital regardless of the interest rate arithmetic.
When your job is not secure: If there is meaningful probability of layoff, restructuring, or voluntary departure within the loan term, the forced repayment risk turns what seems like a manageable payment into a potential tax bomb.
If you cannot sustain contributions: A plan that suspends your contributions — and your employer match — during the loan period can cost you far more than the interest savings, particularly if you’re young and the missed compounding years are the most valuable of your career.
- IRS maximum: lesser of $50,000 or 50% of your vested account balance
- Maximum repayment term: 5 years (longer permitted for primary home purchase loans)
- Interest rate: typically Prime Rate + 1% (approximately 9.5% in 2026)
- Interest is paid back to your own 401(k) account — not to a bank
- Job separation triggers immediate repayment by that year’s tax filing deadline
- Default on a 401(k) loan = taxable distribution + 10% penalty if under age 59½
- Some plans suspend contributions and employer match during loan repayment
- Outstanding loan balance at job separation treated as early withdrawal if unpaid
401(k) Loan Alternatives Worth Comparing First
Before committing to a 401(k) loan, a short review of alternatives can either confirm it is your best option or reveal a better path that preserves your retirement savings entirely.
| Alternative | Typical Rate | Retirement Impact | Best For |
|---|---|---|---|
| 401(k) Loan | ~9.5% (to self) | Moderate — lost growth | Job-secure borrowers needing 1–5 years |
| Roth IRA Contribution Withdrawal | 0% | None on contributions | Those with Roth IRA — contributions always withdrawable |
| Home Equity Loan (HELOC) | 8–10% | None | Homeowners with equity, tax deductible use |
| Personal Loan (bank/credit union) | 8–14% | None | Good credit, short repayment period |
| 0% APR Credit Card | 0% intro (12–21 mo) | None | Short-term needs payable within promo period |
| 401(k) Hardship Withdrawal | N/A (penalty + tax) | Severe and permanent | True emergency with no repayment capacity |
If you have a Roth IRA with contributions, those funds can be withdrawn at any time, at any age, with zero taxes or penalties — only the earnings are restricted. This is often the cleanest emergency fund option available to workers who have been contributing to a Roth IRA.
Frequently Asked Questions — 401(k) Loan Calculator
Before You Borrow: Your 401(k) Loan Decision Checklist
Run the True Cost tab first. Before agreeing to any loan amount or term, use the True Cost calculator above to see the full economic impact — lost growth plus double taxation, not just the interest rate. Many borrowers who do this calculation choose a smaller loan amount or a shorter term than they originally planned.
Confirm your plan allows loans. Employer plans are not required to offer loan provisions. Call your HR department or plan administrator to confirm your plan offers loans and to get the current interest rate, maximum amount, and any contribution suspension rules that apply.
Model the job-separation scenario. Ask yourself honestly: if I were laid off six months after taking this loan, could I repay the full balance by next April? If the answer is no, the risk profile of this loan changes significantly.
Compare with Roth IRA contributions first. If you have a Roth IRA with contributions, those can be withdrawn penalty-free and tax-free at any time. This is often the cleanest short-term source of funds that leaves your 401(k) intact. Use our Roth IRA Calculator to see your full picture.
Set up automatic extra payments immediately. If you do take the loan, use the Repay Faster tab to find an extra payment amount that gets you paid off in 2–3 years instead of 5. The interest and opportunity cost savings are substantial, and the faster the money returns to the market, the less compounding you permanently sacrifice.