401(k) Loan vs. Early Withdrawal Calculator
Compare borrowing from your 401(k) against an early hardship distribution, calculating 10% penalties, income taxes, monthly payments, and lost compounding.
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Frequently Asked Questions
What are the legal rules for a 401(k) loan?
IRS regulations permit you to borrow up to 50% of your vested account balance, up to a maximum of $50,000, within a rolling 12-month window. The loan must be repaid within 5 years with payments made at least quarterly (longer repayment allowed only for purchasing a primary residence).
Why is a 401(k) withdrawal so financially punitive?
Taking an early distribution before age 59½ triggers ordinary federal income tax (up to 37%), state income tax, plus an immediate 10% early withdrawal penalty. On a $25,000 withdrawal in a 24% tax bracket, you forfeit over $10,000 in immediate taxes.
What happens to an outstanding 401(k) loan if you leave or lose your job?
Under the Tax Cuts and Jobs Act, if you separate from your employer with an unpaid 401(k) loan balance, you have until the federal tax filing deadline (including extensions, typically October 15 of the following year) to roll the unpaid loan balance into an IRA. Any unpaid amount is treated as a taxable early distribution with a 10% penalty.
Is interest paid on a 401(k) loan double taxed?
Yes. You repay the loan interest using after-tax dollars from your paycheck. When you eventually withdraw those funds in retirement, they are taxed again as ordinary income.