Volume 16: The Lockshield Letter
Mar 31, 2026
Episode 17: 401(k) Loans
401(k) Loans: Pros and Cons
Episode Description
In this episode of the LSP Podcast, we take a closer look at 401(k) loans—how they work, when they might make sense, and the risks involved. While borrowing from your retirement account is generally not ideal—especially if you’re behind on saving—it can be a useful tool in certain situations.
We explain how a 401(k) loan differs from a withdrawal. Instead of taking a distribution, you’re borrowing from your own account and paying it back over time with interest, much like a traditional loan. However, if you miss payments or fail to follow the repayment schedule, the loan can be treated as a distribution—triggering taxes and potentially a 10% early withdrawal penalty.
We also cover key rules, including loan limits of up to $50,000 or 50% of your balance, whichever is less, and the fact that not all employer plans allow loans.
Finally, we discuss what happens if you leave your employer with an outstanding loan. You may need to repay the balance in full, or the remaining amount could be treated as taxable income—and if you’re under age 59½, it may also be subject to the 10% penalty.
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Episode 17: 401(k) Loans
401(k) Loans: Pros and Cons