How much you can borrow from a 401(k) in 2025, and what it actually costs
Photo by Annika Wischnewsky · Unsplash
A 401(k) loan lets you borrow against your own retirement savings, capped at the lesser of $50,000 or half your vested balance, with the money and interest going back into your own account. What that framing leaves out is what happens if you leave your job before it is repaid, and what the loan actually costs in lost growth.
A 401(k) loan is capped at the lesser of $50,000 or 50% of your vested account balance, with an exception letting you borrow up to $10,000 even if half your balance is smaller than that. Not every plan offers loans at all — it is optional for the employer to include — and the rules on repayment, and on what happens if you leave your job before the loan is repaid, matter as much as the borrowing limit itself.
The borrowing limit
The maximum a 401(k) plan can let you borrow is set by federal law, not by the plan itself, confirmed by the IRS's retirement topics page on plan loans:
| Vested balance | 50% of balance | Maximum loan allowed |
|---|---|---|
| $15,000 | $7,500 | $10,000 (small-balance exception) |
| $60,000 | $30,000 | $30,000 |
| $150,000 | $75,000 | $50,000 (dollar cap applies) |
The rule is the lesser of $50,000 or 50% of the vested balance — except that if 50% of the balance comes to less than $10,000, the participant can still borrow up to $10,000. Only the vested portion of the balance counts; unvested employer matching contributions are not available to borrow against. A participant with an existing or recent loan also has the $50,000 figure reduced by the highest outstanding balance they carried during the preceding 12 months, which limits back-to-back borrowing against the same account.
Not every 401(k) offers loans
Offering participant loans is a plan design choice, not a federal requirement — a 401(k), 403(b) or 457(b) plan may allow them, but is not required to, and a traditional or Roth IRA cannot offer a loan under any circumstances. Some plans also cap loans below the federal maximum, limit participants to one outstanding loan at a time, or charge an origination fee the federal rules do not otherwise require. Checking a specific plan's summary plan description is the only way to know which of these narrower limits, if any, apply on top of the federal ceiling.
Repaying it: five years, at least quarterly
A 401(k) loan generally must be repaid within five years through substantially level payments, made at least quarterly, typically deducted directly from payroll. The one broad exception is a loan used to buy a participant's main home, which can be repaid over a longer term set by the plan. Missing the repayment schedule by enough to fall outside the plan's cure period turns the unpaid balance into a "deemed distribution" — taxable income in the year it happens, plus a 10% early withdrawal penalty if the borrower is under 59½, even though no money actually left the plan through a distribution.
What a typical loan actually costs
Take a $20,000 loan at a 6.5% interest rate, repaid over 5 years in level monthly payments — the same math as any other amortizing loan:
| Figure | Amount |
|---|---|
| Amount borrowed | $20,000 |
| Approximate monthly payment | $391 |
| Total repaid over 5 years | $23,480 |
| Total interest | $3,480 |
Unlike a bank loan, that $3,480 in interest is paid back into the borrower's own account, not to a lender — the loan interest calculator runs this same amortization for any amount, rate or term. That framing is accurate but incomplete: while the loan is outstanding, the $20,000 that was withdrawn is not invested and cannot benefit from market growth. If that amount would otherwise have grown at an illustrative 7% average annual return, it would have reached roughly $28,051 after 5 years — a difference of about $8,051 that no interest paid back into the account recovers, since the repayments only start rebuilding the balance as they are made rather than restoring the full amount on day one. This comparison is illustrative only; actual investment returns vary and are never guaranteed.
Leaving your job with an unpaid balance
Many plans require the full outstanding balance to be repaid immediately if a participant leaves their job or the plan terminates. If it is not repaid, the unpaid amount becomes what the IRS calls a "qualified plan loan offset" — treated as distributed from the plan, and taxable, unless the participant rolls over that same amount into an IRA or another employer plan. The deadline to do that rollover is not immediate: the IRS's page on plan loan offsets confirms the deadline is the participant's tax filing due date, including extensions, for the year the offset occurs — an extension added by the 2017 Tax Cuts and Jobs Act. Missing that deadline means the offset amount is taxed as ordinary income for that year, plus the 10% early withdrawal penalty if the borrower is under 59½.
How it compares with borrowing elsewhere
A 401(k) loan does not require a credit check, does not appear on a credit report, and charges interest that is repaid to the borrower rather than a bank — all real advantages over a personal loan or credit card balance at a much higher rate. The costs that get missed in that comparison: loan repayments are made with after-tax payroll dollars into a pre-tax account, so that money is taxed again on withdrawal in retirement, a layer of double taxation that does not apply to money that was simply left invested. Many plans also do not allow new 401(k) contributions while a loan is outstanding, or reduce them, which can mean missing an employer matching contribution for as long as the loan is being repaid — a cost with no equivalent in a bank loan comparison at all. Whether a 401(k) loan or a lower-rate personal loan costs less overall depends heavily on that specific employer match and the interest rate available elsewhere; neither option is automatically cheaper.
What to check before borrowing
- Confirm your plan actually offers loans, and whether it applies a lower limit than the federal maximum — check the plan's summary plan description rather than assuming the $50,000 figure applies.
- Check whether new contributions, and any employer match, continue or pause while a loan is outstanding.
- If you expect to change jobs while a loan is outstanding, plan for the possibility of repaying the full balance immediately or rolling over the offset amount by the extended tax deadline.
- Compare the interest rate your plan charges against a personal loan or line of credit you could realistically qualify for — a 401(k) loan is not automatically the cheaper option.
Sources
This is general information, not financial or tax advice. Specific plan rules vary, and the right choice between a 401(k) loan and other borrowing depends on your own plan's terms, your employer match and your job stability. For a decision about your own retirement account, check your plan document or consult a licensed financial professional.