A 401(k) loan calculator compares interest paid to yourself against market growth while shares are out of the plan.
This 401k loan calculator compares interest paid to yourself against potential market growth while shares are out of the plan. A 401k loans calculator should include job-change repayment risk and double-taxation nuances on interest. Enter loan amount, term, fund return assumption, and pay rate for 401k loan calculator opportunity cost. 401k loan calculator outputs are educational—plan rules, origination fees, and vesting differ by employer. Use the 401k loans calculator before borrowing; see compound interest and retirement guides for long-term tradeoffs.
True cost of borrowing from your 401(k)
401(k) loans pay interest to yourself but remove dollars from market exposure. Opportunity cost—the growth you miss while the loan is outstanding—often exceeds the interest rate on the note.
Leaving your employer can trigger rapid repayment; unpaid balance may become taxable distribution plus penalty if you are under 59½.
Compare plan loan versus personal loan, emergency fund, or delaying the expense before reducing retirement compounding.
Guide, examples, and methodology
401k loan calculator
Borrowing from your 401(k) repays interest to yourself but removes balance from market growth. Model loan size, plan rate, and expected investment return to estimate opportunity cost versus a bank loan.
401k loans calculator
Job change often requires rapid repayment—factor termination risk before you borrow from retirement assets.
How to use this 401(k) loan cost calculator
Model borrowing from your 401(k): loan amount, interest rate paid back to yourself, lost market growth on borrowed funds, job-change repayment risk, and alternative borrowing cost. US plans often allow loans up to 50% of vested balance (IRS limits apply).
Example (USD)
Item
Example
Risk
Loan
$20,000 from 401(k)
Not invested while outstanding
Opportunity cost
7% market return forgone
Can exceed loan interest
Job change
Balance due quickly
Potential tax + penalty if default
How we calculate
We compare ending balance if you left funds invested versus repaying a plan loan with stated interest, plus optional alternative loan APR. Plan rules, double taxation myths, and fees vary—read your SPD and talk to HR.
Common mistakes
Treating 401(k) interest paid to yourself as ‘free money’ while missing market gains.
Borrowing for discretionary spending instead of true emergencies.
Ignoring repayment if you leave the employer.
Reducing contributions while repaying the loan and missing the employer match.
IRS limits and plan rules (overview)
The IRS generally caps 401(k) loans at the lesser of $50,000 or 50% of your vested account balance (with additional rules for low balances). Not every plan offers loans; some allow two outstanding loans or restrict purpose. Maximum term is often five years except for primary residence. Your Summary Plan Description lists fees, default treatment, and whether you may continue contributions while repaying.
Job change and default risk
If you terminate employment with an outstanding loan, many plans require full repayment within 60–90 days. Unpaid balance may be treated as a distribution—ordinary income tax plus 10% early withdrawal penalty if under age 59½ (exceptions apply). That risk often exceeds the spread between plan loan rate and bank personal loan APR.
Alternatives to compare
Before borrowing from retirement, compare: taxable emergency fund, HYSA, 0% promo credit card (if payoff plan exists), home equity line (if secured debt is acceptable), or unsecured personal loan. Each avoids removing dollars from tax-advantaged compounding. Enter an alternative APR in this calculator to see if external borrowing costs less on a risk-adjusted basis.
Sometimes for short-term liquidity with stable employment, but opportunity cost and job-change repayment risk are real. Compare to a personal loan or emergency fund first using this calculator.
What happens if I lose my job while having a 401(k) loan?
If you leave or lose your job, the IRS typically mandates that you must repay the outstanding loan balance in full by the tax filing deadline. If you cannot repay, the remaining sum is classified as an early withdrawal distribution, triggering ordinary income taxes plus a 10% penalty fee.
What happens if I lose my job with a 401(k) loan?
Many plans require full repayment within months or the balance becomes taxable distribution + penalty if under 59½.
Is 401(k) loan interest tax deductible?
No — you pay interest with after-tax dollars into a pre-tax account; not deductible like mortgage interest.
Double taxation on 401(k) loan interest?
You repay with after-tax money; at withdrawal the interest portion may be taxed again as part of retirement distributions — often cited as hidden cost.