Can I take out 2 loans from my 401k?

When it comes to what you can do under your 401k plan, much depends on the terms of the plan. For many, the question of whether they can take out two loans from their 401k is a common one. The answer isn't always clear-cut, as it can vary based on several factors including employer policies, plan design, and affiliation statuses.

loan Limitations

The simple answer to whether you can take out two loans from your 401k is yes. However, the nuanced response is more complex. Regardless of the number of loans you have, the limitations on loans apply in the aggregate to the total of all loans outstanding. This means that even if you can take out multiple loans, the combined outstanding balance of these loans would be subject to the plan's overall loan limitations.

Multi-plan Eligibility

If your employer has multiple plans and you participate in both, you may borrow under both plans if they are allowed and the plans permit this. The same rule applies if you participate in multiple plans maintained by affiliated employers. In such cases, the individual borrowing limits from each plan would be combined. For example, if two 401k plans allow a 50% loan on the total account balance and you have a combined balance of $100,000, you could potentially borrow up to $50,000 from each plan, assuming the usage does not exceed the aggregate limits.

In contrast, if you participate in 401k plans of unaffiliated employers, you could take loans under each plan independently. This means that if your account balances were sufficient and the plans allowed, you could borrow a total of $50,000 from each unaffiliated employer's plan, even if the total from these plans is $100,000. However, the key factor is whether the plans themselves allow this.

Employment Status and Plan Requirements

Another aspect to consider is whether you must be actively employed to take out a 401k loan. This can be a plan-imposed requirement, and not all plans require it. Additionally, some plans that do require proof of active employment are prohibited from doing so due to certain federal regulations. The Department of Labor primarily oversees such requirements, and any plan that violates these rules is subject to penalties.

Rolling Over Old 401k Plans

If you have an old 401k from a previous employer, you might be able to roll it into your current 401k plan. After the rollover, you would have access to a larger account balance, which could potentially allow you to take a larger loan. This is a common strategy to maximize borrowing limits under a single 401k plan.

Conclusion

The ability to take out multiple loans from your 401k depends on the specific rules of your plan, employer, and the affiliation status of your plans. It's essential to review your employer's 401k plan document to understand the terms and limitations fully. Consulting with a financial advisor can also provide valuable insights to navigate these complexities effectively.