The 401(k) Loan Looks Free. Here Is What It Costs
Is borrowing from your own 401(k) really a no-brainer?
You might be thinking, "Ralph, I'm paying the interest to myself." I get that a lot, and the math looks great on the surface. A listener with $8,000 on a 22% credit card can borrow from her 401(k) at 6%. Feels like a win.
There are four catches.
Catch One: You Repay With After-Tax Dollars
Your contributions went in before tax. Your loan payments come out after tax, and that money gets taxed again in retirement. I think of it as double tax on the interest.
Catch Two: Your Money Stops Growing
Borrowed money isn't invested. You pay yourself 6%, and the market might pay more.
Catch Three: Losing Your Job Changes Everything
This is the one that hurts people most. If you leave or lose your job while repaying, the balance becomes a distribution. If you can't pay it back in time, it's taxable income, plus a 10% penalty if you're under 59½. You owe tax on money you already spent.
Catch Four: Your Match Might Pause
Some plans block contributions during repayment. You may lose your employer match too.
Get Two Prices Before You Sign
Price the 401(k) loan honestly. Price a personal loan and a home equity line of credit. Then write your lose-my-job plan.
You didn't do anything wrong by carrying a 22% balance. Just get the real cost on paper before you borrow from your future self.
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Licensed Public Accountant
Ralph V. Estep, Jr. is a Delaware-based Licensed Public Accountant (LPA), author, rancher, and media host with more than 30 years of experience in finance, taxation, and small-business leadership. As the founder of Saggio Accounting+PLUS and the creator of the Ask Ralph Media network, Ralph helps entrepreneurs, creators, and everyday families replace money confusion with clarity, confidence, and practical next steps — without shame and without hype.
Ralph's work blends deep professional expertise with a coach's mindset and a communicator's heart. He has held leadership roles across public accounting, financial institutions, law firms, and technology organizations, bringing a rare combination of traditional accounting rigor and modern systems thinking to the people he serves. A graduate of the University of Delaware and Wilmington University (MBA), he is known for turning complex money topics into simple, repeatable frameworks that help people make wiser decisions and build lasting financial stability.
He is the host of Becoming Financially Confident, a live weekday show built on a single conviction: most money stress is not a character problem but a systems problem, and shame is what keeps people from fixing it. The show grew out of Financially Confident Christian, which Ralph hosted for more than 1,200 episodes across eight seasons and earned national recognition. The new show offers the same host and the same feed, opened up to a wider audience.
Through Ask Ralph Media, Ralph hosts several other programs. Grit and Growth Business… Read More
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