401k Loan Rules 2026: Limits, Rates, and SECURE 2.0

• 401k Expert

Quick Answer: 401k Loan Rules 2026

In 2026, you can borrow up to 50% of your vested 401k balance or $50,000 (whichever is less). The standard repayment term is 5 years, extended to 15 for home purchases. Interest rates are typically prime + 1% (~9.5%). SECURE 2.0 now allows employers to continue loan repayment after job separation.

Key Takeaways

  • Maximum loan: 50% of vested balance or $50,000
  • Standard term: 5 years; home purchase: up to 15 years
  • Interest rate: typically prime + 1% (approximately 9.5%)
  • No credit check required
  • SECURE 2.0: employers may allow post-separation repayment
  • Maximum number of loans varies by plan

401k Loan Rules 2026: Everything You Need to Know

Here’s a comprehensive reference for current 401k loan rules including SECURE 2.0 Act changes.

Borrowing Limits

LimitRule
Maximum loan amountLesser of $50,000 or 50% of vested balance
Small balance exceptionUp to $10,000 if vested balance < $10,000
Maximum outstanding loansPlan-dependent (typically 1-2)
Replenishment periodNone after repayment (can borrow again immediately)

Interest Rates

  • Typical rate: Prime rate + 1%
  • Rate determination: Set by plan administrator
  • Fixed or variable: Most plans use fixed rates
  • Rate source: Generally published prime rate on date of loan issuance

Repayment Terms

Loan TypeMaximum TermPayment Frequency
General purpose5 yearsAt least quarterly
Primary residence purchase15 yearsAt least quarterly
Military duty suspensionUp to 5 years (additional)Suspended during duty

SECURE 2.0 Act Changes (Effective 2024+)

Key changes affecting 401k loans:

  1. Post-separation repayment: Employers can allow former employees to continue loan payments (optional, not mandatory)

  2. Self-certification for hardship: New plans must allow self-certification for hardship withdrawals

  3. Emergency withdrawals: Up to $1,000/year for unforeseeable expenses (no penalty)

  4. Domestic violence withdrawals: Up to $10,000 penalty-free for victims

  5. Terminal illness: Penalty-free withdrawals for terminal diagnosis

  6. Long-term care: Penalty-free for certain long-term care insurance

Tax Treatment

AspectTreatment
Loan proceedsNot taxable (if repaid)
Interest paymentsAfter-tax dollars, not deductible
Default/foreclosureTaxable distribution + 10% penalty if under 59½
RepaymentNo tax impact

Plan-Specific Rules

Your employer’s plan may have additional restrictions:

  • Minimum loan amount ($500-$1,000 common)
  • Loan purpose restrictions
  • Fees for loan origination and administration
  • Limits on number of loans per year
  • Waiting periods between loans

Compliance Requirements

  • Payments must be made at least quarterly
  • Amortized repayment schedule required
  • Loan must be documented in writing
  • Interest rate must be “reasonable” (IRS standard)
  • Loan cannot exceed statutory limits

Use our 401k calculator to see how these rules apply to your situation. For more detailed breakdowns, see our 401k loan interest rate guide, our 401k loan repayment schedule guide, and our 401k loan vs withdrawal comparison.

Frequently Asked Questions

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