How Will a 401(k) Loan Affect Credit?

401(k) plan loans are made from the plan participant's account balance and are paid directly to the participant. They are not reported to credit agencies and will not affect your credit.

Loans

Loans are available in most plans but not all. They can be made in amounts up to 50% of the balance or $50,000, whichever is less.

Repayment

This is typically done by payroll deduction, except sometimes in smaller companies, where writing a check to the plan may be required.

Frequency

Repayment must be made at least quarterly, although most plans require it with each paycheck.

Delequencies

If you fail to make repayments on time, or if the plan sponsor fails to deduct the payments, it's still your responsibility. The loan could be deemed a distribution and made taxable, incurring penalties.

Considerations

Even though a delinquent loan will not affect your credit, the IRS will be notified but not a credit agency. It is important to remember the tax consequences, even though there will not be a credit impact.

References

• IRS 401(k) Resource Center