How Can I Borrow From My 401(k)? Limits, Repayment, and Risks

To borrow from your 401(k), confirm your plan offers loans, request an amount through your plan administrator (usually online), and repay yourself through payroll deductions over five years. Federal law caps the loan at the lesser of $50,000 or the greater of half your vested balance or $10,000, and there’s no credit check because the loan is secured by your own account.¹

First, Check Whether Your Plan Allows Loans

Federal law lets employers offer 401(k) loans, but each company decides whether to include the feature in its plan. Your Summary Plan Description, available from your benefits department or the plan administrator’s online portal, will confirm whether loans are available and list any plan-specific restrictions.

Assuming loans are offered, you generally need to meet a few basic conditions:

You’re an active employee. Most plans do not let former employees take out new loans.
You have a vested balance to borrow against. If your employer’s match follows a vesting schedule, the unvested portion doesn’t count toward what you can borrow.
You don’t have a prior loan that was treated as a taxable distribution because of missed payments. Most administrators will not approve a new one on top of a defaulted loan.

Some plans also set a minimum account balance, often around $1,000, before you can request a loan. Check your plan documents for the specifics.

How Much You Can Borrow

The maximum is set by federal law at the lesser of these two amounts:

$50,000, reduced if you carried a higher outstanding loan balance at any point during the previous 12 months, or
The greater of 50% of your vested account balance or $10,000.¹

The $10,000 floor matters for smaller accounts. If your vested balance is $15,000, half is only $7,500, but the statute lets you borrow up to $10,000 because it uses whichever is greater. Some plans cap loans at 50% of the vested balance regardless, so whether you get the benefit of the $10,000 floor depends on your plan following the full statutory formula.

The $50,000 cap can shrink if you recently paid off another plan loan. The reduction equals the difference between your highest outstanding loan balance during the prior 12 months and your current balance. If you had a $30,000 balance six months ago and paid it down to $10,000, your new maximum would be $50,000 minus $20,000, leaving a $30,000 cap.¹

Federal law does not limit how many loans you can have at once, but your plan might. Some allow only one; others permit two or more. When you hold multiple loans, the combined outstanding balance still cannot exceed the limits above.²

How to Request the Loan

Most administrators handle loan requests through an online portal. The process usually looks like this:

Log in to your benefits platform and find the loans or distributions section. Enter the amount you want to borrow and pick a repayment frequency, usually matching your payroll cycle.
Choose which investments to liquidate. You designate which funds inside your account will be sold to generate the loan proceeds, which determines what stops growing while the loan is out.
Sign the promissory note. Many platforms accept electronic signatures; some administrators still require a physical signature for larger amounts.
Submit spousal consent if required. Plans subject to qualified joint and survivor annuity rules (most common in plans that offer annuity distributions) require your spouse to sign a consent form, often notarized.³
Wait for processing. Most requests are reviewed and funded within a few business days, though some administrators may take up to two weeks.

Once approved, you generally choose between direct deposit and a mailed check. Direct deposits usually arrive within a couple of business days; paper checks take longer.

Interest, Fees, and Repayment

Most plans set the interest rate at the prime rate plus one percentage point. As of late 2025, the prime rate was 6.75%, putting a typical 401(k) loan rate around 7.75%. The rate is usually locked in when the loan is issued and stays fixed for the life of the loan. Every dollar of interest you pay goes back into your own retirement account.

Plans can also charge a one-time setup fee or ongoing maintenance fee and pass those individual service charges to the borrower.⁴ Amounts vary, so ask before you apply.

Federal law requires that you repay the loan, with interest, within five years. The one exception is a loan used to buy your primary residence, which can extend beyond five years; the statute doesn’t cap the length, so your plan sets that limit and terms of 10 to 25 years are common.⁵

Payments must follow a substantially level amortization schedule, meaning each installment includes both principal and interest in roughly equal amounts over the life of the loan. Payments are due at least quarterly, though most employers set up automatic payroll deductions that match your pay cycle.¹ Check your first couple of pay stubs after the loan funds arrive to confirm deductions have started.

Federal law doesn’t impose a prepayment penalty. Some plans let you increase your payroll deductions or make a lump-sum payment directly to the plan to pay off the balance early. Contact your administrator for the mechanics under your plan.

What Happens If You Miss Payments

Missing a payment doesn’t always trigger an immediate default. Your plan may include a cure period, a window during which you can catch up before the loan is treated as a taxable distribution. When a cure period exists, it can extend up to the end of the calendar quarter following the quarter the payment was due. Miss a payment due in February, and the cure period could run until June 30.⁶

Not every plan offers a cure period. If you don’t make up the missed payment in time, or if no cure period exists, the entire outstanding balance is treated as a deemed distribution. That triggers income tax on the unpaid amount plus, if you’re under 59½, a 10% early distribution penalty.⁷

Leaving Your Job Before the Loan Is Paid Off

If you leave your employer while you still owe money, whether you quit, get laid off, or retire, the remaining balance typically becomes due in full. If you can’t repay it, the unpaid amount is treated as a plan loan offset and reported as a taxable distribution.⁸

You can avoid the tax hit by rolling the offset amount into an IRA or another eligible retirement plan. The deadline is your tax filing due date, including extensions, for the year the offset occurs, not the usual 60-day rollover window.⁹ If you leave your job in 2026 and file for an extension, you’d have until October 15, 2027 to complete the rollover. You’ll need cash from another source, since the loan proceeds are no longer in your 401(k).

Costs That Aren’t Obvious

The interest rate isn’t the whole cost of a 401(k) loan.

The borrowed money is pulled out of your investments while the loan is outstanding. You repay yourself with interest, but that rate is typically lower than long-term market returns. On a $10,000 loan, if your investments would have returned 8% while your loan rate is 7.75%, you lose the spread and the compounding on that spread for every year the money is out of the market. If your plan also reduces your regular contributions while you’re repaying (some do, though it isn’t federally required), you miss employer matching during that period too.

There’s a tax layer as well. Loan repayments come out of your paycheck after income tax is withheld, and in a traditional 401(k) that same money is taxed again as ordinary income when you withdraw it in retirement. The interest portion is hit hardest: you pay tax on the income used to make the interest payment, then pay tax a second time when you pull that interest out in retirement. In a Roth 401(k) the mechanics differ, but interest repayments still add after-tax money to the account without the tax benefit that makes Roth contributions attractive.

A Loan Is Not a Hardship Withdrawal

If your plan offers both, understand the difference before you choose. A loan is not a permanent withdrawal: you get the money tax-free up front and repay yourself over time, and as long as you follow the schedule there’s no tax or penalty. A hardship withdrawal permanently removes money from the account. The withdrawn amount is taxed as ordinary income in the year you receive it, plus the 10% early distribution penalty if you’re under 59½. You don’t repay it.¹⁰

Hardship withdrawals also require you to demonstrate an immediate and heavy financial need, such as medical expenses, funeral costs, or preventing eviction. Loans don’t require you to justify the purpose. For most people who can manage the repayments, a loan is the less costly option because the money eventually returns to the account and you avoid both the income tax and the early withdrawal penalty.

1
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
2
Internal Revenue Service. Issue Snapshot – Borrowing Limits for Participants With Multiple Plan Loans
3
Internal Revenue Service. Fixing Common Plan Mistakes – Failure to Obtain Spousal Consent
4
U.S. Department of Labor. A Look at 401(k) Plan Fees
5
Internal Revenue Service. Retirement Topics – Loans
6
Internal Revenue Service. Issue Snapshot – Plan Loan Cure Period
7
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
8
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
9
Internal Revenue Service. Plan Loan Offsets
10
Internal Revenue Service. Hardships, Early Withdrawals and Loans