401(k) Loan

Determine if a taxpayer would benefit by taking out a loan from a 401(k) account to pay off a high interest rate credit card. This calculator only evaluates 401(k) assets involved in the loan.

To open this calculator, click Calculators in the toolbar, and then click Personal Finance > 401(k) Loan in the left panel.

You can export the data as a PDF file or clear all data that you entered. For more information, see Financial calculators.

This calculator assumes that the payment amount for the 401(k) loan would instead go toward the credit card debt. With the 401(k) loan, the credit card debt is immediately paid off. Without the loan, a balance remains on the credit card debt at the end of the proposed 401(k) loan, because the credit card debt carries a higher interest rate.

At the end of the loan period, the 401(k) assets convert to an equivalent after-tax dollar amount and you can compare them to the credit card balance, which is also an after-tax dollar amount. Determine the after-tax amount by subtracting the taxes expected to be paid when the funds are withdrawn. Use the Combined Tax Rate section to indicate this tax rate.


Should a taxpayer with a 15% credit card debt of $10,000 borrow from a 401(k) at 4% to pay off this debt?

Field Input
Expected return on 401(k) investments 6%
Interest rate on credit card 15%
Amount borrowed $10,000
Interest rate on 401(k) loan 4%
Payments per year 12
Years of payments 3
Federal tax rate 28%

In this example, the taxpayer would have $2,065.23 more in after-tax dollars by paying off the credit card with the proceeds from a 401(k) loan.

The 401(k) value after loan repaid field for the With Loan column is the amount of the repaid loan plus interest plus return generated from the time the funds were repaid to the end of the loan.

The amount in the Without Loan column is the loan (not taken) plus the return generated by leaving the funds in the 401(k) account during the period of time of the loan.

Internal notes


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