How Do You Pay Back a 401(k) Loan? Payroll, Leave, and Job Exit

To pay back a 401(k) loan, you repay the plan through automatic payroll deductions on a fixed, level schedule, with the full balance generally due within five years. The interest you pay goes back into your own account, and the payments come out of your after-tax pay rather than your pre-tax contributions.¹

Payroll Deductions Are the Default

If you are still working for the employer that sponsors the plan, your plan administrator coordinates with payroll to withhold a fixed dollar amount from every paycheck. Federal law requires that the amount stay level for the life of the loan, that each payment cover both principal and interest, and that payments occur at least once per quarter.² Most plans deduct with every paycheck rather than in a single quarterly hit, which keeps each deduction smaller.

The deductions come from your after-tax pay. Loan repayments are not the same as your regular 401(k) contributions and do not reduce your taxable income.³ The exact amount depends on how much you borrowed, the interest rate your plan sets (often one or two points above the prime rate), and the length of the loan.

Confirm with HR or the benefits office when the first deduction will hit and how it appears on your pay stub. Missing that first payment is the most common way to fall out of compliance before you have even started.

Making Manual or Extra Payments

Payroll deductions do not cover every situation. You might need to pay outside the normal cycle if deductions have not started yet, if you are on leave, or if you want to pay the loan off early. For a manual payment, contact your plan administrator and ask for the process. You will usually need your loan account number and the plan’s identification number so the payment posts correctly.

Many administrators run an online portal that lets you push an ACH transfer from your personal checking account, which is typically the fastest option and leaves an electronic record. Certified or cashier’s checks mailed to a designated processing address are common backups. Larger custodians often will not accept personal checks.

The level-amortization rule sets the floor for what your regular payment must look like, but many plans allow additional lump sums on top of that schedule.² Extra payments reduce your principal and can shorten the payoff. If you have already missed a payment, the IRS also recognizes corrections such as a lump sum to cover the shortfall with interest, or a reamortization of the remaining balance into higher future payments.⁴

Pausing Payments for Leave or Military Service

An unpaid leave of absence can qualify for a repayment pause of up to one year, if your plan allows it. When you return, you have to make up the missed payments, either by raising each remaining payment or by paying a lump sum, so the loan is still fully repaid within the original five-year term.⁵

Qualified military service is broader. If you are called to active duty, your plan may suspend payments for the entire length of your service, and the loan term is extended by the same amount of time when you return.² Interest can keep accruing during the pause, but the suspension prevents the missed payments from becoming a taxable event while you are deployed.

Neither pause is automatic. Confirm with your plan administrator that your plan document actually adopts these provisions before you count on them.

How Long You Have to Repay

A general-purpose 401(k) loan has to be paid off within five years.² A loan used to buy your primary residence is exempt from that ceiling, and plans commonly allow 15, 20, or 30 years for that purpose.¹

Going past the maximum term turns the remaining balance into a taxable distribution. If you are under 59½ when that happens, the 10% early withdrawal penalty stacks on top of ordinary income tax.⁶

What Happens If You Miss a Payment

A missed payment does not immediately become a taxable event. Most plans use a cure period. The longest cure period the IRS allows runs through the last day of the calendar quarter after the quarter in which you missed the payment.⁷ Miss a May payment (second quarter), and you have until September 30 to catch up.

If you do not cure the miss in time, the IRS treats the entire unpaid balance, plus accrued interest, as a “deemed distribution.”⁸ It is taxed as ordinary income, with the 10% penalty added if you are under 59½.⁹

A deemed distribution is not the same as having the debt canceled. You still owe the loan to the plan, and you can keep making payments afterward. Those later payments build tax basis in your account. What you cannot do is undo the tax hit by rolling a deemed distribution into an IRA.⁵ The plan reports the amount on Form 1099-R with distribution code L.¹⁰

Repaying After You Leave Your Job

If you quit, get laid off, or retire with a loan balance still outstanding, most plans want the full amount repaid within a short window. If you cannot pay it, the administrator subtracts the unpaid balance from your account. That reduction is called a plan loan offset, and unlike a deemed distribution it counts as an actual distribution that can be rolled over.⁵

If you do nothing, the offset is taxed as ordinary income, with the 10% penalty on top if you are under 59½.⁶ To avoid the tax, you deposit an equivalent amount of cash into an IRA or a new employer’s plan. That counts as a rollover and neutralizes the distribution.

The QPLO Rollover Deadline

The deadline depends on how the offset is classified. A “qualified plan loan offset” (QPLO), which generally covers offsets triggered by leaving your job or the plan being terminated, gives you until your federal tax filing deadline for the year the offset happened, including extensions.¹¹ Leave a job in July 2026, and you generally have until April 15, 2027, or October 15, 2027 with an extension, to fund the rollover. Offsets that are not QPLOs fall under the standard 60-day rollover rule instead.

Reporting the Rollover

Your former plan sends a Form 1099-R showing the offset. A QPLO uses distribution code M in box 7.¹¹ On your return, you report the distribution and indicate the rollover so the IRS can see the loan was replaced with new funds. Keep the offset statement from the old plan and the deposit confirmation from the new account. Missing the deadline makes the offset a permanent taxable distribution.

The Tax Reality of Repayment

Repaying a 401(k) loan runs on after-tax money, which changes the arithmetic in ways that surprise some borrowers. The principal you borrowed left your account tax-free, so putting it back with after-tax dollars restores funds that will be taxed later when you withdraw them in retirement. That is not truly double taxation on the principal, because the money was never taxed on the way out.

The interest is different. You pay interest with after-tax dollars, and that interest lands in your 401(k) where it will be taxed again as ordinary income when you withdraw it. Interest on a 401(k) loan is the one piece that genuinely gets taxed twice, and it is not deductible.

1
Internal Revenue Service. Retirement Topics – Loans
2
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
3
Internal Revenue Service. Considering a Loan From Your 401(k) Plan
4
Internal Revenue Service. 401(k) Plan Fix-It Guide – Participant Loans Don’t Conform to the Requirements of the Plan Document and IRC Section 72(p)
5
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
6
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans Other Than IRAs
7
Internal Revenue Service. Issue Snapshot – Plan Loan Cure Period
8
Internal Revenue Service. Fixing Common Plan Mistakes – Plan Loan Failures and Deemed Distributions
9
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
10
Internal Revenue Service. Instructions for Forms 1099-R and 5498
11
Internal Revenue Service. Plan Loan Offsets