The IRS borrowing limit, your payroll repayment, and what the loan costs your retirement
Updated October 2026
Under IRC section 72(p), as the IRS explains in its plan-loan FAQs (reviewed February 2026), a loan cannot exceed the lesser of $50,000 or the greater of $10,000 or 50% of your vested balance. The $50,000 is reduced by how far your highest loan balance in the last 12 months exceeds what you owe now, and anything you still owe counts against the limit. Plans are not required to offer loans, and a plan can set a lower limit or skip the $10,000 minimum, which is why the calculator lets you switch it off.
The IRS works two examples. A participant with a $40,000 balance can borrow $20,000. Jim has $80,000 vested; eight months ago he borrowed $27,000 and still owes $18,000. His new loan plus the $18,000 can be no more than the lesser of $41,000 ($50,000 minus the $9,000 he has already repaid) or $40,000 (half his balance), so he can borrow $22,000 more. If he paid the first loan off first, his limit would be $23,000.
Your vested balance is on your plan statement or website; unvested employer money does not count. The loan rate and the payment schedule come from your plan’s loan policy, and repayments usually come out of each paycheck. The calculator’s 8% is only an example rate. The return is your assumption about what the borrowed money would have earned had it stayed invested.
Payment = loan × r ÷ (1 − (1 + r)−n), where r is the annual rate divided by the paychecks per year and n is the number of paychecks. For $25,000 at 8% over 130 biweekly paychecks, that is $233.62. Over 5 years you repay $30,370.38, of which $5,370.38 is interest. That interest goes into your own account, but you pay it with after-tax dollars. The real cost is growth: left invested at an assumed 9%, $25,000 would grow to $38,466; the payments, invested as they arrive, grow to $37,901. The difference, $565, is what the loan costs your retirement balance. The answer depends entirely on the return you assume:
| Assumed return | 4% | 6% | 8% | 10% | 12% |
|---|---|---|---|---|---|
| Growth given up on $25,000 at 8% for 5 years | −$3,111 | −$1,762 | −$253 | $1,426 | $3,288 |
The loan’s 8% charged every paycheck compounds to about 8.3% a year. When the investments would have earned less than that, the payments put more back than the money would have earned, so the loan comes out ahead; when markets return more, the loan costs you. Nobody knows the return in advance, which is why the calculator asks for your assumption.
| Situation (8% loan, biweekly, 9% assumed return) | Maximum new loan | Payment per paycheck | Interest repaid to you | Growth given up |
|---|---|---|---|---|
| $60,000 vested, borrow $25,000 over 5 years (default) | $30,000 | $233.62 | $5,370.38 | $565 |
| $140,000 vested, ask for $60,000: capped at $50,000 | $50,000 | $467.24 | $10,740.76 | $1,129 |
| Jim (IRS example): $80,000 vested, owes $18,000 of a $27,000 loan | $22,000 | $205.58 | $4,725.94 | $497 |
| $15,000 vested, $10,000 minimum applies | $10,000 | $93.45 | $2,148.15 | $226 |
| Home purchase: $40,000 over 15 years, $120,000 vested | $50,000 | $176.26 | $28,743.25 | $5,406 |
Loans must be repaid within 5 years in substantially level payments of principal and interest made at least quarterly. A loan used to buy your principal residence can run longer if the plan allows it. You can have more than one loan at a time, but the combined balance must stay within the limit above.
If you leave with a balance, many plans reduce your account by the unpaid amount, a plan loan offset. The offset is treated as a distribution, but you can roll the same amount into an IRA or another plan until the due date, including extensions, of your tax return for that year. If you do not, it is taxable, and before age 59½ the 10% additional tax generally applies unless you separated from service in or after the year you turned 55. Leaving at 40 with $12,000 unpaid and no rollover costs about $3,840: $2,640 of income tax in the 22% bracket plus the $1,200 additional tax. Missing payments while still employed makes the loan a deemed distribution: the whole outstanding balance is taxed, and it cannot be rolled over. Plans may allow a cure period up to the end of the quarter after the missed payment.
A hardship withdrawal is taxable and never paid back; a loan is not taxed if you repay it on schedule. A loan keeps the money in your retirement plan, at the cost of payroll deductions and lost growth while it is out.
It does not model your plan’s specific rules (minimum loan amounts, fees, how many loans it allows), changes in your pay schedule, or market losses, which would make the missed growth smaller. It uses one assumed return for the whole term. For a large loan, a job change or a home purchase, read your plan’s loan policy and talk to the plan administrator or a financial adviser.
“The interest is taxed twice.” Only the interest portion is repaid with after-tax money and taxed again at withdrawal; the principal you borrowed was never taxed in the first place. On a $25,000 loan the interest at issue is $5,370.38, not the whole balance.
Cutting contributions while repaying. Stopping new contributions to afford the payment often costs more than the loan itself, especially if you lose an employer match.
Ignoring the job-change risk. The offset rollover window helps, but only if you can find the cash to deposit in an IRA.
Stacking loans. A second loan is limited by the highest balance of the first in the past 12 months, as Jim’s example shows.