I recently saw a question on the forum about "Should I pay off my Home LOAN from my 401(k) or continue to pay Interest to myself".

Most responses seemed to think that paying it off ASAP was the best idea because of the rule about having to pay it off within 90 days if terminated or leave.

I am in a fairly similar situation, except that my plan administrator told me that if I am let go or change jobs I can just continue to make the bi-monthly payments.

Under that condition, does it still make sense to pay off the loan (which will add about $900/month to my take home pay). I think I should pay it off but am hesitant to do so until I hear what the experts say. BTW, I am over 59 1/2.

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    Did the plan administrator tell you in writing that it is OK to continue bi-monthly (or did you mean semi-monthly -- twice a month -- instead of bimonthly -- once every two months) payments or just orally?? As a rule of thumb, 401(k) loan repayments are made through payroll deduction from salary, and it is uncommon (I think illegal too) for an employee to be paid every two months; salaries must be paid at least as frequently as monthly. Feb 5, 2019 at 2:08
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    @DilipSarwate FYI: “Bimonthly” is one of those weird English words that has two contradictory definitions. A magazine published bimonthly means that you get 6 issues a year, but a loan with bimonthly payments means that you will have 24 payments in a year.
    – Ben Miller
    Feb 5, 2019 at 12:46
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    The more important point is: Are you losing matching funds while the loan is outstanding?
    – Ben Voigt
    Feb 5, 2019 at 18:38
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    "Under that condition, does it still make sense to pay off the loan (which will add about $900/month to my take home pay)" How does paying off a loan add to your take-home pay? Mar 7, 2019 at 15:55
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    As of this comment, this question has 152 views. Which means that by writing "?" instead of "question", one person has been saved the trouble of writing "question", while 152 people (okay, probably less since they probably aren't unique views, but still a lot) have been given the trouble of mentally converting "?" to "question". Mar 7, 2019 at 15:56

2 Answers 2


First of all, if you think that you should pay off the loan early, then do it. No one here will tell you that it is a bad idea to pay off the loan. By paying off the loan, you will eliminate a monthly payroll deduction and you will increase the amount of money you have invested in your 401(k).

401(k) plans can vary greatly from employer to employer. Most 401(k) plans require loans to be paid back in full upon leaving the company, but it is possible, although unusual, that yours does not. I would want to see that explicitly called out in writing before I relied on it.

Remember that while your loan is out, that money that you have not yet paid is not in your 401(k) earning investment dividends. Many people like the idea of paying interest to themselves, but forget that while they do it they forgo investment income.

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    Also, I believe that you can't make contributions while the loan is outstanding. Mar 7, 2019 at 15:58
  • @Acccumulation - I’m sure this varies by company. If true, and their company offered a match, I’d never recommend a loan. Jul 5, 2019 at 19:45

Being over 59-1/2, you won't have the penalties associated with an early withdraw, so your costs are reduced. But if it's a traditional 401k, you'd still end up paying taxes at your tax rate if you didn't pay it back. Regardless, by having your money unplugged from the investments means you're losing out on market gains. And "paying yourself interest" just means the extra you're putting back in you'll eventually get back out (in other words, putting more in now to offset some of the gains you would have received had you not taken the loan).

Finally, when dealing with questions of debt, I like to recommend borrowing Dave's book from the library, The Total Money Makeover and also, Chris Hogan's book, Everyday Millionaire. These books help you identify common financial mistakes (such as 401k loans) and give advice on what to do to correct it.


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