Should I Borrow From a 401(k) to Pay Off My Debt?

Many 401(k)s allow you to borrow from your account. Unless you really need the money for an emergency, don’t do it. Borrowing can be an expensive trap, in two ways:

  • Frozen contributions Your plan may not allow you to contribute to your 401(k) until the loan has been repaid. So if you typically put in $600 a month and it takes you two years to repay your loan, you’ll have missed out on $14,400 in contributions—plus company matches—and any potential gains on that money.
  • Repayment requirements If you lose your job or take another one, you’ll have to repay the money quickly, usually within 30 to 60 days. If you can’t, the IRS considers the money you’ve taken out to be a withdrawal. That means you’ll have to pay taxes—and if you’re under age 59½, a penalty as well.

Use this calculator to help you determine if you should borrow from your account and the potential impact on your retirement savings.


Any tax or legal information in this website is merely a summary of our understanding and interpretations of some of the current income tax regulations and is not exhaustive. Investors should consult their tax advisor or legal counsel for advice and information concerning their particular situation. Wells Fargo Funds Management, LLC, Wells Fargo Funds Distributor, LLC, nor any of their representatives may give legal or tax advice.

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