Should I pay back my 401(k) loan early?

By paying back your 401 (k) loan early, you can prevent loan default. A default can lead to severe tax implications because the IRS treats defaulted 401 (k) loans as a distribution, subject to income tax and potentially an additional 10% early withdrawal penalty if you're under 59 ½.

Can a 401(k) loan be repaid early?

A 401 (k) loan can provide competitive interest rates, and you can maintain your tax advantages. Repayments are set according to your loan term, but you can repay a 401 (k) loan early. If you change jobs, you may have to pay back the loan earlier. You can borrow up to $50,000 or half of the amount in your 401 (k), whichever is less.

How long do you have to pay back a 401(k) loan?

According to IRS rules, you have five years to pay back the loan, unless the funds are used to buy your main home, in which case you have more time to repay. The ability to take out a loan helps make a 401 (k) plan one of the best retirement plans, but a loan has some key disadvantages.