A 401(k) loan feels free: no credit check, the interest goes back into your own account, and you are paying yourself. That is exactly why people underprice it. The cost is not the interest — it is the growth the borrowed money stops earning while it sits outside the market. This 401(k) loan calculator shows both numbers side by side so you can decide with the full trade visible.
The IRS limits 401(k) loans to the lesser of $50,000 or 50% of your vested balance, with a maximum 5-year repayment term for anything that is not a primary-home purchase. Defaulting does not trigger collections — it triggers a deemed distribution, with taxes and potentially the 10% additional tax.
How the two-sided cost works
On the loan side the math is a plain amortization: a fixed monthly payment at your plan's rate, every dollar of which returns to your account. Since you pay the interest to yourself, the interest line is mostly a transfer — the true financing cost is small.
On the growth side the math is compounding, and it does not care that the money was yours. The loan amount would otherwise be invested for the full term; this calculator compounds it at the return you enter and reports the difference as foregone growth. When markets rise during your loan term, that number is usually larger than the interest you 'saved' by borrowing instead of using a card or personal loan.
r = annualInterest / 12
payment = amount × r / (1 − (1 + r)^(−months))
totalPaid = payment × months
missed = amount × (1 + opportunityReturn)^(months/12) − amountMissed growth is an estimate, not a bill: if markets fall during the loan, the money out of the market dodges losses instead. But over multi-year horizons the asymmetry favors being invested, which is why the foregone-growth line deserves as much attention as the payment line.
One more risk the formula cannot price: if you leave your job with the loan outstanding, most plans require full repayment quickly (or offset the balance), and an unpaid balance becomes a taxable distribution — possibly with the 10% additional tax if you are under 59½.
The sample, end to end. You borrow $25,000 from your 401(k) at 7.5% for 60 months to consolidate debt. The payment is $501 a month, and over the term you repay $30,057 — of which $5,057 is interest going right back into your account. But had that $25,000 stayed invested at 8%, it would have grown by $11,733. Your real all-in cost is the missed growth minus the interest you paid yourself — compare that net figure against a personal-loan quote before deciding.
Terms & definitions
Vested balance
The portion of your 401(k) that is yours unconditionally — your contributions plus employer money that has completed its vesting schedule.
Amortization
Repaying a loan in fixed installments that cover principal and interest over the term.
Foregone growth (opportunity cost)
The investment returns the borrowed money would have earned had it stayed invested — the silent cost of any 401(k) loan.
Deemed distribution
An unpaid loan balance treated by the IRS as a withdrawal — taxable as income, and penalized if you are under 59½.
Frequently asked questions
How much can I borrow from my 401(k)?
The IRS caps a 401(k) loan at the lesser of $50,000 or 50% of your vested account balance (the cap can reach 100% of vested balance for loans under $10,000 under IRC §72(p)). Your plan sets the actual limit and can restrict loans further, or not offer them at all — the IRS ceiling is a maximum, not an entitlement.
Is a 401(k) loan double-taxed?
Not exactly — but there is a real wrinkle. You repay the loan with after-tax dollars, and pre-tax money is later taxed again at withdrawal. So the repaid principal is effectively taxed twice while the interest portion is taxed once. Compared to the foregone growth, this is usually the smaller cost, but it is not zero.
What happens to a 401(k) loan if I change jobs?
Most plans require repayment in full shortly after separation (often 30–90 days). If you cannot repay, the outstanding balance is treated as a distribution: ordinary income tax, plus the 10% additional tax if you are under 59½. Some plans allow continuing payments after leaving, but that is plan-specific — read your plan document before borrowing if a job change is plausible.
Does a 401(k) loan affect my credit score?
Generally no: plan loans do not appear on credit reports, and approval does not involve a credit check. That makes them accessible when credit is damaged — which is also when the foregone-growth cost is easiest to ignore. The loan's real risk is to your retirement balance, not your credit file.
References
- IRS — Retirement topics: loans, IRC §72(p) limits: irs.gov/retirement-plans/plan-participant-employee/retirement-topics-loans
- IRS Publication 575 — deemed distributions and tax treatment: irs.gov/publications/p575
- Investor.gov — compound interest calculator and fundamentals: investor.gov