A 401(k) or similar employer plan can lend you money from your own account, but it doesn’t have to. The IRS page “Retirement topics — Loans” says profit-sharing, money purchase, 401(k), 403(b) and 457(b) plans may offer loans, while IRAs and SEP, SIMPLE IRA and SARSEP plans cannot — a loan from one is a prohibited transaction. The maximum is the lesser of 50% of your vested account balance or $50,000, and a plan may let you borrow up to $10,000 when 50% is less than that. Repayment is generally within five years, at least quarterly. The calculator below also handles the $50,000 cut when you already have a loan.
1. Limit = lesser of 50% of vested balance or $50,000 — $80,000 gives $40,000; $120,000 gives $50,000.
2. With existing loans, $50,000 is reduced by the highest balance in the last 12 months minus today’s balance.
3. Miss the 5-year, at-least-quarterly schedule and the balance becomes a distribution — income tax and possibly the 10% additional tax.
Calculator
Updates as you type. The limit is the IRS maximum; your plan may allow less or no loans at all. We cap the $10,000 exception at your vested balance and round to whole dollars (our handling). Payments use a level amortisation formula (our sum); your plan sets the rate and schedule.
Who can borrow — IRS Retirement topics — Loans
| Type | What the source says | Worth noting (ours) |
|---|---|---|
| Plans | Profit-sharing, money purchase, 401(k), 403(b) and 457(b) plans may offer loans; a plan is not required to | Check your Summary Plan Description |
| IRAs | IRAs and SEP, SIMPLE IRA and SARSEP plans cannot — it would be a prohibited transaction | The calculator doesn’t fit IRAs |
| Applying | You apply and the loan must meet requirements; the administrator describes availability and terms | — |
The limit — two IRS wordings
| Type | What the source says | Worth noting (ours) |
|---|---|---|
| Basic | The lesser of 50% of the vested balance or $50,000 | Retirement topics — Loans |
| $10,000 exception | If 50% is under $10,000, up to $10,000. Plans are not required to include it | Same page |
| FAQ wording | (1) the greater of $10,000 or 50%, or (2) $50,000, whichever is less | Loans FAQ 4; the same rule worded differently (our reading) |
| FAQ example | A $40,000 balance allows up to $20,000 | — |
| IRS example 1 | Bill, $80,000 → up to $40,000 | 50% is lower |
| IRS example 2 | Sue, $120,000 → up to $50,000 (50% is $60,000) | $50,000 is lower |
More than one loan — Loans FAQ 4
You can have several loans, but a new one plus what’s outstanding can’t exceed the plan maximum, and $50,000 is reduced by the difference between the highest outstanding balance in the 12 months ending the day before the new loan and the balance on the day of the new loan. IRS example: a participant with $100,000 vested borrows $40,000 on 1 January 2005, repaid in 20 quarterly instalments of $2,491; on 1 January 2006 the balance is $33,322. The $6,678 difference leaves a combined ceiling of $43,322 ($50,000 − $6,678), so the new loan can be at most $10,000 ($43,322 − $33,322).
Repayment rules — IRS
| Type | What the source says | Worth noting (ours) |
|---|---|---|
| Term | Within 5 years, in substantially equal payments of principal and interest, at least quarterly | Reg. 1.72(p)-1, Q&A-3 |
| Home | For your principal residence, repayment can run longer than 5 years | How long isn’t stated here |
| Military | Repayments can be suspended during active duty and the term extended | — |
| Leave | If pay is too low to repay, suspension up to a year, without extending the term — make up afterwards | Must still finish in the original 5 years |
| Spouse | Some plans need written spousal consent for loans over $5,000 | Certain profit-sharing plans may not |
| Not contributions | Loan repayments are not plan contributions | Separate from contribution limits (our note) |
If you can’t repay or you leave — IRS
A loan over the maximum or off its repayment schedule is a deemed distribution: without at least quarterly payments, the balance is treated as a distribution, subject to income tax and possibly the 10% early distribution tax. If you stay in the plan you still have to repay, and those amounts become basis that isn’t taxed when later paid out. When you leave or the plan ends, the plan may require full repayment; if you can’t, it’s reported as a distribution on Form 1099-R, but rolling the outstanding amount into an IRA or another plan by the tax return due date (with extensions) avoids the immediate tax (reported on Form 5498).
Six worked cases — our examples
| Case (our example) | New loan up to | Worth noting (our sum) |
|---|---|---|
| Vested $80,000, no loans | $40,000 | Same as IRS example 1 |
| Vested $120,000 | $50,000 | Same as IRS example 2 |
| Vested $100,000, today $33,322, 12-month high $40,000 | $10,000 | Same as the FAQ |
| Vested $16,000, plan has the $10,000 exception | $10,000 | Without it, $8,000 |
| $40,000 at 7%, 5 years, monthly | $792 a month | Interest $7,523 in total |
| $20,000 at 7%, 5 years, quarterly | $1,194 a quarter | Interest $3,876 in total |
These US additional taxes apply to US taxpayers (citizens, green-card holders and US tax residents). If you live in Korea with a US account, the Korea–US tax treaty and Korean tax law also come in, so don’t rely on this arithmetic alone (our note).
401(k) limits and matching are in US 401(k); the 10% on withdrawals after leaving is in the early withdrawal penalty calculator.
Checklist
- ☐ Does your plan have a loan provision? (SPD)
- ☐ Vested balance — leave out unvested match
- ☐ Highest loan balance in the last 12 months
- ☐ A schedule within 5 years, at least quarterly
- ☐ What happens to the balance if you leave (rollover by the due date)
Questions that remain
What interest rate applies?
The IRS pages don’t set one; the plan must give you rate information. The calculator uses what you enter.
Can I keep repaying after leaving?
The IRS says the plan may require full repayment. Whether it lets you continue depends on the plan.
Should I borrow at all?
The IRS suggests talking to a financial planner first about whether a loan from a financial institution would be better.
Sources
- IRS — Retirement topics — Loans — source (Page Last Reviewed or Updated 26 February 2026; checked 5 November 2026). Which plans may lend and that IRAs can’t, the limit and optional $10,000 exception, Bill and Sue, 5-year quarterly repayment and the home exception, leaving and plan termination, rollover, deemed distributions, military and leave, spousal consent, what plans tell participants.
- IRS — Retirement plans FAQs regarding loans — source (Page Last Reviewed or Updated 26 February 2026; checked 5 November 2026). Q4: the FAQ wording and $40,000 example, the 12-month highest-balance reduction and the $100,000 example, 5-year quarterly repayment, home, military, one-year leave, repayments aren’t contributions.
- Not read. Reg. 1.72(p)-1 itself, the hurricane relief (FAQ 9), correction programme detail, the Korea–US treaty.
- What we added. The “worth noting” column and the Korean everyday gloss.
Where to check further
- Your plan’s SPD and administrator — loan terms, rate, number of loans.
- A US tax professional (CPA or EA).
Written on 5 November 2026. The content is from the source; the glosses are ours.
