You can borrow from your 403(b), but the rules are strict and the cost to your retirement is real
Yes, you can borrow from your 403(b) account while you are still employed. The loan comes from your own money — the balance you have already contributed and any growth it has earned. You repay yourself with interest, and the interest goes back into your account. But borrowing reduces the amount working toward your retirement, and if you leave your job, the loan terms change dramatically.
The decision to borrow is not about whether you can — it is about whether the trade-off makes sense for your situation. A 403(b) loan is cheaper than a credit card or personal loan, but it costs more than leaving the money alone.
Key Takeaways
- Your plan document sets the loan rules: how much you can borrow, how long you have to repay, and what interest rate applies — these vary by employer and plan.
- You can typically borrow up to 50 percent of your vested balance, with a cap around $50,000, though your specific plan may allow less.
- Loans must be repaid within five years unless the money is for a home purchase, in which case the term can be longer.
- If you leave your job, you usually have 60 to 90 days to repay the full loan balance or it becomes a taxable withdrawal and you owe income tax plus a 10 percent penalty if you are under 59½.
- The money you borrow stops earning investment returns while it is out of your account, which reduces your retirement savings growth.
How much you can borrow and the limits that explore
The amount you can borrow depends on your plan document, which your employer or plan administrator controls. Most 403(b) plans allow you to borrow up to 50 percent of your vested account balance, with a maximum loan of around $50,000. Some plans set a lower ceiling — 25 percent of your balance, or a flat $25,000 maximum. A few plans do not allow loans at all.
Your vested balance is the money that belongs to you outright. If your employer makes matching contributions that vest over time, only the vested portion counts toward your borrowing limit. Check your plan document or call your plan administrator to find out your specific limit. The document will also tell you whether your plan allows loans at all.
If you have multiple 403(b) accounts from different employers, each account has its own borrowing limit. You cannot combine balances to borrow more from one account.
Interest rates and repayment terms
The interest rate on a 403(b) loan is set by your plan and is usually the prime rate plus 1 to 2 percentage points. This rate is fixed for the life of the loan. The interest you pay goes back into your account, so you are paying yourself, but you are still losing the investment returns that money would have earned if it had stayed invested.
Repayment terms are typically five years for general loans. If you borrow for a home purchase — defined narrowly as buying or building a primary residence — your plan may allow a longer term, sometimes up to 15 or 30 years. Payments are usually made through payroll deduction, so the money comes out of your paycheck before taxes.
Your plan document specifies the exact repayment schedule. Some plans require monthly payments; others allow quarterly or annual payments. If you miss a payment, the loan may go into default, which can trigger a taxable distribution of the remaining balance.
What happens to your loan if you leave your job
This is the biggest risk of borrowing from a 403(b). If you leave your employer — whether you resign, are laid off, or retire — the loan terms change when ready. Most plans require you to repay the full outstanding balance within 60 to 90 days. The exact important date is in your plan document.
If you cannot repay the balance in time, the remaining loan amount is treated as a taxable withdrawal. You owe federal income tax on the full amount at your ordinary tax rate. If you are under 59½, you also owe a 10 percent early withdrawal penalty on top of the income tax. On a $20,000 loan balance, this could mean $6,000 to $8,000 in taxes and penalties.
Some plans allow you to roll the loan into an IRA or a new employer's 403(b) plan to avoid this outcome, but this must happen within the 60 to 90 day window and requires coordination with both plans. If you are unsure whether your new employer's plan accepts rollovers, ask before you leave your job.
The hidden cost: lost investment growth
When you borrow $10,000 from your 403(b), that $10,000 is no longer invested in your account. While you are repaying the loan with interest, the money you borrowed is sitting in a loan account earning nothing. The interest you pay yourself is typically 4 to 8 percent annually, depending on the prime rate and your plan's markup. Meanwhile, your 403(b) investments might have earned 7 to 10 percent or more over the same period.
Over a five-year loan, this gap compounds. A $10,000 loan repaid at 6 percent interest costs you roughly $1,600 in interest payments. But if that $10,000 had stayed invested and earned 8 percent annually, it would have grown to about $14,700. By borrowing, you give up roughly $3,100 in potential growth — money you will not have in retirement.
This cost is invisible because you do not see the money you did not earn. It is real nonetheless.
Loans versus hardship withdrawals
A 403(b) loan is different from a hardship withdrawal. A loan must be repaid; a withdrawal is permanent. With a withdrawal, you lose the money and the growth it would have earned forever. With a loan, you keep the option to rebuild your balance through repayment and future contributions.
Hardship withdrawals are taxed as ordinary income and subject to the 10 percent early withdrawal penalty if you are under 59½. A loan avoids these taxes as long as you repay it on schedule and do not leave your job. If you do leave your job and the loan goes into default, you face the same tax and penalty as a hardship withdrawal.
If you need money for a true financial emergency — medical bills, eviction prevention, or a necessary home repair — a loan is usually better than a withdrawal because you can repay it without permanent loss. If you are borrowing for discretionary spending or to cover ongoing expenses, a withdrawal may be the wrong choice for the same reason: the permanent loss is too high.
Steps to request a loan from your 403(b)
Contact your plan administrator — usually your employer's benefits department or the third-party company that manages your 403(b) plan. Ask for the loan request form and the plan document section on loans. The form will ask for the loan amount, the repayment term you want (within the limits your plan allows), and the reason for the loan.
Submit the completed form to your plan administrator. Processing typically takes one to two weeks. Once approved, the loan amount is transferred out of your investment account and into a loan account. Your repayment schedule begins, usually with the first payment due 30 to 60 days after the loan is funded.
Keep a copy of your loan agreement. It will show the loan amount, interest rate, repayment term, monthly payment amount, and the date the loan will be fully repaid. If you change jobs, you will need this document to understand your repayment important date and your options for rolling the loan into a new plan.
Frequently Asked Questions
Can I borrow from my 403(b) if I am no longer working for that employer?
No. You can only borrow from a 403(b) while you are employed by the company that sponsors the plan. Once you leave, you can no longer take out new loans. If you already have an outstanding loan, you must repay it within the important date set by your plan — usually 60 to 90 days — or it becomes a taxable withdrawal.
What is the difference between borrowing and a Roth conversion?
A loan and a conversion are completely different. A loan lets you borrow your own money and repay it. A conversion moves money from a traditional 403(b) to a Roth account and is taxed as income in the year of conversion. You cannot undo a conversion. A loan is temporary; a conversion is permanent.
Can I borrow from my 403(b) to pay off credit card debt?
Technically yes, but it is usually not the best choice. A 403(b) loan costs you lost investment growth, and if you leave your job, you face a tight repayment important date. Credit card debt is a problem, but borrowing from retirement to solve it trades one problem for another. A personal loan, balance transfer, or debt management plan may be better options to discuss with a financial counselor.
What happens if I cannot make a loan payment?
Missing a payment puts your loan into default. Your plan may allow a grace period of 30 to 90 days, depending on the plan document. If the loan is not brought current, the entire outstanding balance is treated as a taxable withdrawal. You owe income tax on the full amount and a 10 percent penalty if you are under 59½. Contact your plan administrator when ready if you miss a payment to understand your options.
Can I borrow from my 403(b) while I am still making contributions?
Yes. You can have an active loan and continue contributing to your 403(b) at the same time. Your contributions go into your investment account while your loan repayment comes out of your paycheck. The two happen in parallel. However, your contributions do not reduce the amount you owe on the loan.