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According to IRS guidance, the most someone can borrow against their 401k plan is $50,000 (or 50% of the plan, if that amount is less than $50,000)

If someone had multiple 401ks, could they create multiple loans that combined totaled over $50,000?

Seems very easy to just roll over some funds into a self directed 401k, and then create the desired loans.

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401(k) plans limit loans to current employees, and do not loan money to past employees. In fact, if an employee takes a loan from his/her 401(k) account and subsequently leaves or is dismissed (and thus becomes an ex-employee), then the loan must be repaid immediately (or within a short time 30 days? 60 days?), or else the amount still outstanding is reported to the IRS as a distribution from the plan, and thus taxable income to the ex-employee. Penalties will apply if the distribution is deemed to be a premature distribution.

So, your question about taking loans that total more than $50K from more than one 401(k) plan is moot unless you have two or more current jobs and you are a participant in two or more 401(k) plans offered by different employers and the total assets of in your accounts in these multiple currently active 401(k) plans exceed $100K. If you are indeed working so hard (often, only full-time employees can participate in 401(k) plans) and are a member of these multiple simultaneously active 401(k) plans, then aganju's answer tells you that you cannot take a total of more than $50K in loans from all these 401(k) plans.

  • Employer sponsored + solo 401k. Not really that much work involved or improbable. Thanks for the insight – CQM Mar 14 '17 at 20:18
  • "401(k) plans limit loans to current employees," Source? Most do this, but not all. There are plenty that do allow it (including one of mine). – Joel Jan 23 '18 at 0:28
  • @Joel From the Motley Fool website: Most, if not all, 401(k) plans do not allow former employees to take out loans from their accounts, and actually require that any previously outstanding loans be paid back within a short period of time after leaving employment. It's easy to understand why -- after all, while you're receiving paychecks, the "lender" is guaranteed that you'll repay your 401(k) loan as agreed. Once you're no longer receiving those paychecks, you become much more of a credit risk. – Dilip Sarwate Jan 23 '18 at 2:15
  • So I arrived at this page because my former employer's plan does allow me to do this, and this is a question I have. I legitimately want an answer to the question asked, and none of the answers here are useful. – Joel Jan 23 '18 at 4:13
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I agree with Aganju. The believe the limit is the total for all loans within a year. I found this on the IRS website below, although it's not clear what they mean by "related employer."

https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-general-distribution-rules

To quote it: "You must reduce the $50,000 amount, above, if you already had an outstanding loan from the plan (or any other plan of your employer or related employer) during the 1-year period ending the day before the loan. The amount of the reduction is your highest outstanding loan balance during that period minus the outstanding balance on the date of the new loan."

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The limit is for the total of all loans.

Of course it's easy to circumvent it temporarily, but at the end-of-year reporting, the IRS will know, and then one or more of the 'loans' will be treated as 'unqualified withdrawal', implying full tax and a extra penalty on it; and all repayments potentially are considered as 'over-limit contributions' that you must retract (or face more penalty).

  • 3
    Can someone provide a link to a law or IRS document that states that the limit is for the total of all loans? – Jasper Dec 14 '16 at 17:44
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    I, too, would need a source for that. The IRS website isn't clear, or canonical, in comparison to an IRS circular, guidance, or case law. – CQM Dec 14 '16 at 18:43
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    Did anyone ever find a source on this? @aganju? – frogeyedpeas Jul 23 '17 at 4:30

protected by Community May 30 '18 at 15:41

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