How Many 401k Loans Can You Have at Once?

A 401(k) plan is a tax-advantaged retirement savings vehicle, allowing employees to contribute for retirement. Beyond saving, a 401(k) plan can offer participants the option to borrow against their vested account balance. This feature provides a potential source of funds for various needs without requiring a traditional credit check. A 401(k) loan involves borrowing money from your own retirement savings, with repayments, including interest, directed back into your account.

Understanding 401k Loan Limits

Internal Revenue Code (IRC) Section 72(p) governs 401(k) loans, establishing limits to prevent them from being considered taxable distributions.

The maximum loan is the lesser of 50% of the vested account balance or $50,000. For example, a participant with a $75,000 vested balance could borrow up to $37,500. If 50% of the vested balance is less than $10,000, a participant may still borrow up to $10,000.

The $50,000 limit is not a fixed amount for each new loan. It is reduced by the highest outstanding loan balance from any qualified employer plan within the preceding 12 months, even if repaid. For instance, if a participant had a $20,000 loan outstanding in the last 12 months, their current $50,000 borrowing capacity would be reduced by $20,000, allowing a maximum new loan of $30,000, assuming sufficient vested balance.

These are federal maximums; individual 401(k) plans can impose more restrictive limits. Plans may set lower percentage or dollar limits, or stipulate a maximum number of outstanding loans, or even allow only one loan. The specific terms and availability are determined by the plan document.

Rules for Borrowing from Multiple Plans

Participants may have multiple 401(k) plans from current and previous employers. While borrowing from a current employer’s plan is common, borrowing from a former employer’s plan requires specific allowance. The IRC limits on loan amounts apply across all qualified plans of the employer. The aggregate outstanding balance from all loans across all employer-sponsored plans cannot exceed federal maximums.

Even if a plan permits multiple concurrent loans, their combined outstanding balance must remain within federal and plan-specific limits. For example, if a plan allows two loans, and a participant takes an initial $20,000 loan, any subsequent loan is limited by the remaining borrowing capacity. The sum of all outstanding balances cannot exceed the lesser of 50% of the vested balance or $50,000 (reduced by the highest outstanding balance in the prior 12 months). Thus, the number of loans is tied to the total dollar amount borrowed.

Repaying a 401k Loan

Repaying a 401(k) loan returns funds to the participant’s retirement account. Payments are made through regular payroll deductions, ensuring consistent and timely repayment. This automatic deduction helps participants adhere to the repayment schedule. The standard repayment period is up to five years, though loans for a primary residence may allow a longer term, up to 30 years.

The interest charged on a 401(k) loan is paid back into the participant’s own account, contributing to retirement savings growth. Making consistent and timely payments maintains the loan’s tax-advantaged status. Successfully repaying a loan restores full borrowing capacity.

General Requirements for 401k Loans

A 401(k) plan must permit loans for a participant to take one, as it is an optional feature. If allowed, the plan document outlines eligibility criteria and terms. This may include a minimum vested account balance.

Plans may specify a minimum loan amount. Some plans may require spousal consent, depending on the plan’s structure and applicable state laws. The plan administrator sets loan terms, including interest rate and repayment schedule. A 401(k) loan is not subject to a credit check.