Quick answer
A 401(k) loan lets you borrow from your own retirement account, often without a credit check, and repay yourself through payroll. The IRS caps it at the lesser of $50,000 or the greater of $10,000 or 50% of your vested balance, usually repaid within five years. The risks are lost growth and taxes if you cannot repay.
Borrowing from your 401(k) feels like borrowing from yourself, and in a way it is. That makes it tempting for paying off high-rate debt. It also puts your retirement money and your tax bill on the line, so it deserves a careful look.
How a 401(k) loan works
Your plan is not required to offer loans, but many do. If yours does, you borrow from your vested balance and repay it, with interest, usually through payroll deductions. The interest goes back into your own account.
IRS limits and rules
From the IRS retirement plan loan FAQs:
- Maximum: the lesser of $50,000, or the greater of $10,000 or 50% of your vested account balance. Example from the IRS: with a $40,000 balance, the maximum is $20,000.
- Repayment: generally within five years, in substantially equal payments that include principal and interest, made at least quarterly.
- IRAs: loans are not permitted from IRAs or IRA-based plans such as SEPs and SIMPLE IRAs.
- Default: a loan that is not repaid as required can be treated as a distribution, which is generally taxable.
Pros
- No new lender, and the plan may not check your credit.
- Interest is paid back into your own account.
- Payments come out of your paycheck automatically.
Cons
- Lost growth. Money you borrow is not invested while it is out of the account.
- Job change risk. If you leave or lose your job, check your plan's rules on repaying the loan. Unpaid balances can be treated as distributions.
- Double strain. Some people reduce their regular contributions while repaying, which slows retirement savings further.
- It does not fix spending. If balances come back, you have the cards and the 401(k) loan.
Compare before you borrow
| Option | Main cost | Main risk |
|---|---|---|
| 401(k) loan | Lost investment growth | Taxes if you cannot repay |
| Personal consolidation loan | APR and any origination fee | Credit damage if you miss payments |
| Balance transfer | Transfer fee | Promo ends with a balance |
| Debt management plan | Small agency fees | Enrolled cards usually closed |
Model a consolidation loan with the debt consolidation calculator, and read is debt consolidation a good idea?.
Bottom line
A 401(k) loan can make sense for a stable job, a clear payoff plan and a high-rate balance you will not rebuild. If your job is uncertain, an option that does not touch retirement may be safer. If a personal loan fits, use the form on this page to see whether partner lenders may have an offer, or call (800) 236-7761.
Examples are illustrations, not offers. Approval and terms depend on the lender, your state and your credit profile.
Frequently asked questions about using a 401(k) loan to pay off debt: pros, cons, limits
How much can I borrow from my 401(k)?
If your plan allows loans, the IRS maximum is the lesser of $50,000 or the greater of $10,000 or 50% of your vested account balance. Your plan can set lower limits.
How long do I have to repay a 401(k) loan?
Generally within five years, in substantially equal payments made at least quarterly, according to the IRS. Loans to buy a main home can be longer.
What happens if I do not repay it?
A loan that is not repaid under the plan's terms can be treated as a distribution, which is generally taxable. Check your plan's rules, especially about leaving your job.
Can I borrow from an IRA instead?
No. The IRS says loans are not permitted from IRAs or IRA-based plans.
Is a 401(k) loan better than a personal loan?
It can cost less in interest, but it takes money out of the market and carries tax risk if you leave your job. Compare it with a personal loan's APR and your job security.
Sources
- IRS: Retirement plans FAQs regarding loans (accessed 2026-10-09)
Last updated 2026-10-09. How we research and update pages.