1. What is a 401k Loan?

A 401k loan allows you to borrow money from your retirement savings account. Unlike a withdrawal, you pay back the loan with interest, which goes back into your account. However, there are risks if you leave your job or can't repay the loan.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment amount
• \( PV \) — Loan principal amount (present value)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (loan term in months)

Explanation: The formula calculates the fixed payment needed to fully repay a loan over its term, accounting for both principal and interest.

3. Understanding the Payment Formula

Details: Each payment consists of both interest and principal. Early payments are mostly interest, while later payments apply more to principal.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.5), and loan term in months (typically 12-60 months for 401k loans).

5. Frequently Asked Questions (FAQ)

Q1: What are typical 401k loan terms?
A: Most plans allow loans up to 5 years (60 months) for general purposes, or up to 15 years (180 months) for primary home purchases.

Q2: What interest rates apply to 401k loans?
A: Rates are typically prime rate + 1-2%. Current rates often range from 4-7%.

Q3: Are there limits on how much I can borrow?
A: Generally, the maximum is the lesser of $50,000 or 50% of your vested account balance.

Q4: What happens if I leave my job?
A: The loan typically becomes due in full within 60-90 days. If unpaid, it's treated as a distribution with taxes and penalties.

Q5: Are there tax advantages to 401k loans?
A: No, you pay interest with after-tax dollars, and you'll pay taxes again when withdrawing in retirement (double taxation on interest).