When can I take another 401k loan? (2024)

FAQs

When can I take another 401k loan? ›

If you have an existing 401(k) loan, you can take another 401(k) loan at any time based on the highest outstanding balance in the previous 12 months. However, if you have exhausted your 401(k) loan limit, you must wait until the lapse of the 12-month rolling period to take a second loan.

It typically takes around 1 week from your final payment for your loan to be fully closed. You will not be able to request a new loan until this timeline has passed.

Most employer 401(k) plans will only allow one loan at a time, and you must repay that loan before you can take out another one. Even if your 401(k) plan does allow multiple loans, the maximum loan allowances, noted above, still apply.

Although you can take out more than one 401(k) loan at once, the maximum combined outstanding loan limit may be lower than $50,000 if you take out more than one loan during a 12-month period. Your employer may also set lower limits than the IRS allows.

The total loans outstanding cannot exceed $50,000. There is a 12 month "look back" period, which means you can borrow up to 50% of your total vested balance of all accounts you owned for the last 12 months, reduced by the highest outstanding balance over this look back period.

A participant may have more than one outstanding loan from the plan at a time. However, any new loan, when added to the outstanding balance of all of the participant's loans from the plan, cannot be more than the plan maximum amount.

Yes, it's likely your employer will know about any loan from their own sponsored plan. You may need to go through the human resources (HR) department to request the loan and you'd pay it back through payroll deductions, which they'd also be aware of.

Maximum loan amount

The maximum amount a participant may borrow from his or her plan is 50% of his or her vested account balance or $50,000, whichever is less.

Other reasons for a denial include exceeding your loan limit, your plan allows for only one loan at a time, or your reason for seeking the loan doesn't meet plan criteria (i.e., you want to use the funds to finance your next vacation).

The administrator will likely require you to provide evidence of the hardship, such as medical bills or a notice of eviction.

What is the 5 year rule for 401k loans? ›

401(k) loans

Depending on what your employer's plan allows, you could take out as much as 50% of your savings, up to a maximum of $50,000, within a 12-month period. Remember, you'll have to pay that borrowed money back, plus interest, within 5 years of taking your loan, in most cases.

You'll typically be required to repay what you've borrowed, plus interest, within five years. Most 401(k) plans allow you to borrow up to 50% of your vested account balance, but no more than $50,000. (Vested funds refer to the portion of the funds that you, the employee, own.

While there isn't technically a limit on the number of 401(k) hardship withdrawals you're allowed in a year, you are limited by whether you qualify and whether you have enough money in your 401(k) to cover the qualifying hardship amount.

If you have a high-interest debt, such as from a credit card with a big balance, you may get a much lower interest rate on a 401(k) loan. If you have upcoming debt payments and no other alternatives for paying them, borrowing from your 401(k) can reduce fees and penalties.

There is a small business safe harbor that applies to businesses with fewer than 100 participants. The safe harbor says a small business's 401(k) deposits are timely if they are made within seven business days from the date the contributions were withheld from employee wages.

The 80-120 rule allows organizations to file their Form 5500 in the same size category they filed in the previous year. For growing businesses, this means your organization may be able to file without a required audit, allowing your organization to concentrate on growth.

There is no IRS limit to the amount of times you can withdraw money from a 401(k) once you reach age 59.5. Each plan has its own rules, and you will need to speak with the plan administrator to find out if there is a limit to how many withdrawals you can make in a year.

If your employer approves your request for a second loan, you may be able to refinance your existing loan. You can use the second loan to pay off the outstanding balance of the existing 401(k) loan, and use the remaining funds to finance your project.

If you've taken out loans against your 401(k) retirement funds, you may have to pay off your loan in full when you leave your job—voluntarily or not. Once you are no longer employed, the reasoning goes, you no longer have a paycheck from which to deduct payments.