[Skip to Content]

Should you borrow from a 401(k) or 403(b)?

The majority of 401(k) plans and a growing number of 403(b) plans let you borrow money from your account. A typical plan would allow you to borrow up to 50% of your balance, but not more than $50,000. Use this calculator to help you determine if you should borrow from your account and the potential impact on your retirement savings.
By changing any value in the following form fields, calculated values are immediately provided for displayed output values. Click the view report button to see all of your results.



Financial Calculators from
Dinkytown.net

Financial Calculators ©1998-2024 KJE Computer Solutions, Inc.









Should you borrow from a 401(k) or 403(b)?
*indicates required.
**FIG_GRAPHTITLE** Column Graph: Please use the calculator's report to see detailed calculation results in tabular form.

Definitions

Current 401(k) or 403(b) balance

The starting balance or current amount you have invested or saved in your 401(k) or 403(b).

Annual rate of return

The annual rate of return for your 401(k) or 403(b) account. This calculator assumes that your return is compounded annually and your loan repayments are made monthly. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2023, had an annual compounded rate of return of 15.2%, including reinvestment of dividends. From January 1, 1970 to December 31st 2023, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.9% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.

It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.

Loan amount

The amount you are planning to take out as a loan from your 401(k) or 403(b) account. Loans are normally limited to the lessor of 50% of your balance or $50,000. Contact your plan administrator regarding the actual limits on your specific account.

Loan interest rate

The annual interest rate paid on this loan. The tool assumes that the monthly rate is one twelfth the rate entered. All payments are made monthly. Since loan balances have interest that is normally compounded monthly, and investment rates of return are stated annually (and compounded annually), more interest will be paid on a loan with the same stated interest rate as the expected rate of return on your 401(k) or 403(b) balance.

Loan term

Number of years to repay your 401(k) or 403(b) loan. Depending on your plan, there may be limits on your repayment term. Typically, if you leave your employer before your loan is repaid, you may be required to repay the entire outstanding balance immediately. If you are unable to repay the loan balance, the balance may be considered an early distribution and subject to income taxes and early withdrawal penalties.

Income tax rate

The marginal income tax rate you expect to pay. You may also wish to increase your marginal tax rate to also account for any state income tax. Use the ‘Filing Status and Federal Income Tax Rates on Taxable Income’ table to assist you in estimating your Federal tax rate.

Filing Status and Federal Income Tax Rates on Taxable Income for 2024*
Tax RateMarried Filing Jointly or Qualified Surviving SpouseSingleHead of HouseholdMarried Filing Separately
10%$0 - $23,200$0 - $11,600$0 - $16,550$0 - $11,600
12%$23,200 - $94,300$11,600 - $47,150$16,550 - $63,100$11,600 - $47,150
22%$94,300 - $201,050$47,150 - $100,525$63,100 - $100,500$47,150 - $100,525
24%$201,050 - $383,900$100,525 - $191,950$100,500 - $191,950$100,525 - $191,950
32%$383,900 - $487,450$191,950 - $243,725$191,950 - $243,700$191,950 - $243,725
35%$487,450 - $731,200$243,725 - $609,350$243,700 - $609,350$243,725 - $365,600
37%Over  $731,200Over  $609,350Over  $609,350Over  $365,600
*Caution: Do not use these tax rate schedules to figure 2023 taxes. Use only to figure 2024 estimates. Source: Rev. Proc. 2023-34

Interest rate of other debt

If you are using this loan to pay off other outstanding debt, enter the interest rate for that debt here. Otherwise, enter the interest rate of the loan you would need from a traditional lender for the intended use of your borrowed funds. For example, if you were purchasing a car or other vehicle, enter the interest rate you could receive from your dealership or financing company for the loan that your 401k would replace.


The Retirement Advantage
600 S Nicolet Road
Appleton, WI 54914

Information and interactive calculators are made available to you only as self-help tools for your independent use and are not intended to provide investment or tax advice. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.