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Step 1
Determine the balance on your 401(k) loan and the terms of payment. You won't be able to claim any interest paid on a 401(k) loan on your taxes, and you'll be charged an early withdrawal penalty on the monies received.
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Step 2
Set aside additional funds to pay your loan back as quickly as possible. Because your loan payments are made with after-tax monies you reduce the amount of total savings for retirement. This loan taxes your money twice--once when you pay the 401(k) loan back and again when you withdraw the money at retirement.
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Step 3
Continue to contribute at least the maximum amount matched by your employer. You don't want to decrease your savings to repay your loan because you'll reduce necessary funds for retirement. Taxes due for early withdrawal of 401(k) monies may reduce your account more than expected.
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Step 4
Contact your employer's payroll department and increase your contributions if possible. Payroll deductions for your 401(k) and your 401(k) loan may be split to cover the cost of the loan and contribute to your 401(k) account. By decreasing the contribution amount you raise the amount of money on which the federal government taxes you.
