How Soon After I Pay Off a 401(k) Loan Can I Borrow Again?

Specific rules regarding 401(k) loans vary by plan administrator. However, many plans do allow participants to take more than one loan out at a time, if you did not take your maximum allowable amount out with the first loan. Total 401(k) loan limits must not exceed the IRS loan limits that apply to all retirement plans.

401(k) Loan Limits

The IRS allows you to take a loan for half the vested value of your 401(k) account, or $50,000, whichever amount is smaller. Some plans allow you to take out multiple loans until you reach the maximum amount. Borrowing limitations are placed on a 12-month period, even if you’ve paid the amount back early. For example, if the vested balance of your account is $200,000 and you take a $30,000 loan out in February, you won’t be permitted to take out more than $20,000 in additional funds again until the following February.

Repayment Terms

In general, 401(k) loans must be repaid with interest at regular intervals over a five-year period. If you use the loan to purchase your first home, you will be given an extension. You must remain employed with your company while repaying the loan. If you lose your job or quit for any reason, you’ll be required to repay the loan in full within 60 days.

401(k) Loan Advantages

If your credit score is low and you have trouble getting a low-interest rate loan, this type of credit may be a useful option. You’re borrowing your own money, so you don’t need approval from a lender, as with a traditional loan. Taking out a 401(k) loan typically does not impact your credit rating, so you won’t have to worry about it taking another hit.

Hardship Withdrawal

If you need more money than the amount you’re allotted under 401(k) loan rules, you may want to consider making a 401(k) hardship withdrawal. You’ll have to pay income taxes on the withdrawn funds, and you’ll be taxed a 10 percent early withdrawal fee if you’re under age 59 ½, the minimum age to take funds out without incurring a penalty. However, the penalty fee may be waived for certain hardships, which vary according to each plan. .


About the Author

Laura Woods is a Los Angeles-based writer with more than six years of marketing experience. She has a Bachelor of Arts in communications from the University of Pittsburgh and an MBA from Robert Morris University.