You can borrow from your 401(k) up to the lesser of:
- 50% of your vested account balance, or
- $50,000 minus the highest outstanding loan balance you had in the past 12 months.
For example, if you have $80,000 vested in your 401(k) and no outstanding loans, you can borrow up to $40,000. If you had a $20,000 loan outstanding in the past year, your maximum new loan would be $30,000 ($50,000 - $20,000), even if 50% of your balance is higher
. Additional details include:
- The minimum loan amount is typically $1,000
- Loans generally must be repaid within five years, with payments made at least quarterly.
- If the loan is used to purchase a primary residence, the repayment period may be extended beyond five years
- The interest rate must be commercially reasonable, often prime rate plus 1-2%, and interest is paid back into your own 401(k) account
- If you leave your job before repaying the loan, you may have to repay the outstanding balance quickly or face taxes and penalties
In summary, the maximum you can borrow from your 401(k) is the lesser of half your vested balance or $50,000 minus any outstanding loans in the past year, with repayment terms generally up to five years unless for a home purchase.
