401(k) loan rules for 2026

How much you can borrow

The tax code caps a plan loan at the lesser of:

1. $50,000, reduced by the amount your highest outstanding loan balance during the past 12 months exceeds your balance on the day of the new loan, or
2. the greater of half your vested balance or $10,000.

Everything you owe the plan counts toward that cap, so a second loan only gets what’s left. And the loans from every plan of the same employer are added together.

Vested balance	Most the tax code allows	What most plans allow
$8,000	$8,000	$4,000
$16,000	$10,000	$8,000
$40,000	$20,000	$20,000
$100,000	$50,000	$50,000
$250,000	$50,000	$50,000

That right-hand column is lower for small balances because of a Department of Labor rule, not a tax rule. A plan can’t use more than 50% of your vested balance as security for loans, so lending you more than half would need other collateral, and few plans bother. If your balance is under $20,000, assume half is the most you’ll get unless your plan says otherwise.

The 12-month lookback, worked through

The IRS gives this example. Jim has $80,000 vested. He borrowed $27,000 earlier and has paid it down to $18,000. He wants a second loan.

• Highest balance in the last 12 months minus what he owes now: $27,000 − $18,000 = $9,000
• $50,000 − $9,000 = $41,000
• Half his vested balance: $40,000
• The lesser of the two is $40,000. He already owes $18,000, so the new loan can be up to $22,000.

If Jim paid off the first loan before asking, the lookback would cut the cap to $50,000 − $27,000 = $23,000. Paying it off first buys him only $1,000 more room.

How long you have to repay

Five years, with payments that are “substantially level” and come at least every quarter. In practice almost every plan takes them by payroll deduction from each paycheck, which is why the calculator works per paycheck.

The one exception is a loan used to buy a home that will be your principal residence. The tax code puts no limit on that term; your plan sets it. The loan doesn’t have to be secured by the house. Refinancing an existing mortgage generally doesn’t count. More on this in buying a house with a 401(k) loan.

You can usually prepay at any time without a penalty. Ask your plan, because some charge a fee to process a payoff.

The interest rate

Your plan sets it. The Labor Department requires a rate “commensurate with” what a commercial lender would charge for a similar loan. Some plans tie it to the prime rate. No law sets a formula, so read your loan paperwork for the actual number.

The interest goes into your own account, not to a lender. You repay it with after-tax pay, which has a cost of its own; here’s how much.

Missing payments and default

If a payment is missed, the plan can give you a cure period to catch up. It can’t run past the end of the calendar quarter after the quarter the payment was due. The IRS example: miss a payment due in June and you have until September 30.

If you don’t catch up, the whole unpaid balance plus accrued interest becomes a deemed distribution. It’s added to your taxable income for the year, the 10% additional tax applies if you’re under 59½ and no exception fits, and it can’t be rolled over to fix it. You get a Form 1099-R with code L.

The odd part is that the loan doesn’t disappear. Interest keeps accruing on paper, the old balance still counts against your limit if you ever want another loan, and the plan can require payroll deduction or extra collateral for that new loan. If you repay the defaulted loan later, those payments add to your tax basis, so you aren’t taxed on them twice when you withdraw.

Leaving your job is a different situation with a better escape hatch. See what happens to your 401(k) loan if you leave your job.

Leave of absence and military service

A leave of absence without pay (or with pay lower than the loan payments) can pause payments for up to a year. The loan still has to be paid off by its original end date, so the payments get bigger when you come back, or you owe a lump sum at the end.

Military service can pause payments for longer than a year. When you come back, payments restart and the deadline moves out by the time you served. On a 5-year loan with two years of service, the loan is due seven years after you took it.

Spousal consent

Only some plans need it. Plans subject to the joint-and-survivor annuity rules must get your spouse’s written, witnessed consent within 90 days before the loan. Most 401(k) plans are exempt from those rules, but some still ask for consent as a plan policy. The loan paperwork will say.

Loans after a federally declared disaster

If you lived in a federally declared disaster area and had an economic loss, your plan can offer a larger loan: the lesser of $100,000 or your full vested balance, taken within 180 days of the disaster’s applicable date. Payments due during the incident period can be pushed back a year. Plans don’t have to offer this; the IRS rules are in Publication 575.

Your plan’s rules come first

Everything above is the outer limit. Your plan’s summary plan description and loan policy can:

• not offer loans at all
• cap loans lower, or set a minimum loan amount
• limit how many loans you can have
• charge a setup or yearly fee
• restrict loans to certain purposes
• make the loan due in full when you leave, or let you keep paying

The calculator uses the tax-code limits and flags amounts above half your balance. Plug in your plan’s actual rate and term once you have them.