A 401(k) loan isn’t a withdrawal — no tax or penalty applies as long as it’s repaid on schedule, and interest paid goes back into the borrower’s own account.
How it works
The loan amount is amortized over the repayment term at the plan’s rate, using the same formula as this site’s loan-amortization calculator. Total payments minus the loan amount shows how much interest ultimately flows back into the borrower’s own account.
What this does not include
This doesn’t model the real risk of job separation — an unpaid loan balance at that point is typically treated as a taxable distribution, subject to the 10% early-withdrawal penalty if under age 59½, a scenario this site’s retirement-early-withdrawal-penalty calculator addresses.
How to use this calculator
- Enter the loan amount, plan loan interest rate, and repayment term.
Frequently asked questions
Is a 401(k) loan really “interest-free” since I pay myself?
Not quite — the money borrowed stops earning market returns while out of the account, an opportunity cost that can exceed the interest “earned” if the market outperforms the loan rate during that period.
What happens if I leave my job with an outstanding 401(k) loan?
The remaining balance typically must be repaid quickly (often by the tax filing deadline) or it’s treated as a taxable distribution, potentially with the 10% early-withdrawal penalty added.
Is there a limit on how much can be borrowed?
Yes — federal law generally caps a 401(k) loan at the lesser of $50,000 or 50% of the vested account balance, subject to specific plan rules.
