Question: I’m 55 and married with a $1.5 million 401(k) balance. I earn about $150,000 a year and expect to remain in my job until I retire. I’m planning a major home improvement project, but I lack the immediate cash to cover it.
Since the interest rate on most credit cards is astronomically high, I’m considering a 401(k) loan instead. Is this a sound strategy for someone of my age, or will it harm my future retirement?
Answer: When it comes to borrowing against your traditional 401(k) or Roth 401(k), the conventional wisdom is to avoid it at all costs. After all, it’s less money in your account that can grow and compound.
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But in some circumstances, borrowing against your 401(k) may not be a bad move, especially if you have a sizable retirement savings, are planning to remain in your job for a while and can afford to pay it back.
“Generally speaking, we advise clients to allow it to grow tax-free, at least while you are employed, but from time to time, it makes sense to take out a 401(k) loan,” says Stephanie Williams, senior wealth advisor at AlphaCore Wealth Advisors.
“If you have an urgent home repair that needs to be done right away, a medical expense or funeral costs, it can make sense to take a loan provided you have strong job stability and plan to repay it quickly.”
Start by asking three key questions.
1. Are your savings on track?
Take your retirement savings balance for starters. With $1.5 million already saved, you are ahead of many Americans.
According to JPMorgan Chase, a 65-year-old making $150,000 should have $1.34 million saved to live comfortably, and you already exceeded that amount, 10 years early. That means you have ample time to save even more for your golden years.
2. Is your job secure?
Then there is your job stability. When you borrow against your 401(k), you can spread out repayments over five years if you want to, but if you leave your job, you typically have until the tax filing deadline, including any extensions, to pay it back.
If you don’t, that loan will be treated as ordinary income and taxed at your marginal rate, which, for your income level, would be 22% in 2026. That’s why financial advisers say it makes sense only if you have high job security.
3. What is the 401(k) loan’s interest rate?
Finally, there is the interest rate to consider. With a 401(k) loan, the interest rate tends to be much lower than if you used a typical credit card. At last check, the average APR on a credit card is 19.58%, according to Bankrate, while the average interest charged on a 401(k) loan is currently around 7.75%.
Most 401(k) loans set their interest rate at the Prime Rate plus 1%, which tends to fluctuate. As of March 2026, the Prime Rate, the base interest rate that commercial banks charge their most creditworthy corporate customers, is 6.75%, resulting in a loan rate of around 7.75%.
Plus, with a 401(k) loan, that interest isn’t going to a bank or credit card issuer; it’s paid back to your own 401(k). You are paying yourself interest, but using it with after-tax dollars.
Keep in mind that every retirement plan will differ. Check with your plan administrator to determine the terms and interest rate before you take out a loan.
It’s worth noting that 401(k) loans are usually capped at $50,000. If your home improvement needs are greater, you will have to find the balance elsewhere.
Advantages of a 401(k) loan
There are other benefits to borrowing against your 401(k) instead of charging the cost of the home improvement.
For starters, it won’t impact your credit score because it doesn’t show up in your credit report. If you plan to finance a big-ticket item in the future, you won’t have to worry about paying more in interest.
It can also be quick and easy to take out a loan. You can often have the money in your bank account within three to five days without filling out paperwork or explaining the purpose of the loan.
“With a 401(k) loan, that interest isn’t going to a bank or credit card issuer; it’s paid back to your own 401(k).”
Since you are using the loan for home improvement, the outcome will be to increase your home’s value and build equity. (Some home improvement projects have a higher return on investment than others, so do your research first.) Certain renovations can be added to your home’s cost basis or the total amount invested in your home, which could reduce your capital gains taxes if and when you sell the home, provided the gain exceeds the $500,000 exclusion for married couples.
One caveat: Make sure your plan doesn’t suspend the ability to receive the company match while the loan is outstanding. If it does, you are walking away from free money. In that case, you’ll have to do the calculations to see if the lower interest rate from a 401(k) loan is worth it.
Options other than a 401(k) loan
Judging from your question, your options may be limited when it comes to borrowing money for your home improvement project, but if you have a home, a good credit score and equity built up, there could be cheaper ways to access capital.
For instance, a Home Equity Line of Credit (HELOC) allows you to borrow against a portion of your home’s equity. You pay interest only on the amount you withdraw.
If you have a good credit score, you could take out a credit card with a 0% introductory rate to finance part of your loan, but only if you are certain you can repay the loan within the time frame allotted. (And there’s no guarantee you can get a credit limit high enough to cover the cost of your project.) Otherwise, the rate will reset and could be much higher than the 401(k) loan interest rate.
When a 401(k) loan doesn’t make sense
A 401(k) loan may work for you, but there are instances when it isn’t worth it.
If you borrow from your tax-advantaged retirement plan and stop making contributions to pay back the loan, it will be a double hit. There is no new money coming in, and the amount you borrowed is no longer growing. If you’re doing this to consolidate debt, which you aren’t, and rack up more, you could end up with a 401(k) loan plus new credit card balances.
“Borrowing from your 401(K) is an option that we educate all clients on,” says Williams. “It depends on the rate and your personal situation. Consult with a financial adviser who can guide you through the process.”
