How does a 401(k) loan work, and what are the risks?

A 401(k) loan lets you borrow from your own balance — generally up to 50% of your vested amount or $50,000, whichever is less — and repay it with interest over up to five years (longer for a home purchase). The interest goes back into your account, not to a bank, and there's no credit check. The risks are real, though. The borrowed money stops growing in the market while it's out, so you can miss meaningful gains. If you leave or lose your job, the balance often comes due fast; an unpaid loan is treated as a distribution, triggering income tax plus a 10% penalty if you're under 59½. You're also repaying with after-tax dollars that get taxed again at withdrawal. Treat it as a last resort after cheaper options. Map alternatives at wealthserene.com/tools/debt-payoff.