How Much Can I Withdraw From a 401(k) for a Home Purchase?

You can borrow up to $50,000 or half your vested balance (whichever is less) as a 401(k) loan to buy a home, or take a hardship withdrawal with no set dollar cap but limited to what you actually need for the purchase plus the resulting taxes. Both options exist only if your employer’s plan document allows them, and each carries very different tax consequences. How much you can actually access depends on your vested balance, any recent loan history, and the specific rules your plan has written into its Summary Plan Description.

First, Check What Your Plan Allows

Federal law permits 401(k) plans to offer participant loans and hardship withdrawals, but it does not require them to do so.¹ Some plans allow loans but not hardship withdrawals. Some allow both. Some allow neither.

Your Summary Plan Description spells out which options exist, any minimum loan amounts, and any restrictions tighter than federal law. Request a copy from your plan administrator or pull it from your online benefits portal before assuming you can access anything.

How Much You Can Borrow as a 401(k) Loan

Federal law caps a 401(k) loan at the lesser of two amounts: $50,000, or half your vested account balance.² Two examples:

Vested balance of $80,000: maximum loan is $40,000 (half the balance).
Vested balance of $200,000: maximum loan is $50,000 (the flat dollar cap).

There is one exception to the 50% rule. If half your vested balance is under $10,000, you can still borrow up to $10,000, provided the loan does not exceed your full vested balance.² A participant with a $15,000 vested balance could borrow $10,000 rather than being held to $7,500.

Prior Loans Reduce Your Cap

If you had any outstanding 401(k) loan balance during the past year, your ceiling drops. The plan administrator identifies the highest balance you carried during the 12 months before the new loan date and subtracts that peak from $50,000. If your highest balance in that window was $10,000, your current cap is $40,000 rather than $50,000.³

Only Your Vested Balance Counts

Your own contributions and their earnings are always fully vested. Employer matching contributions often follow a vesting schedule, which means you may not yet own all of them. Check your most recent benefits statement for your vested figure. If you request more than the formula allows, the plan administrator will reject the application.

Repayment Terms for a Home-Purchase Loan

Most 401(k) loans must be repaid within five years through at least quarterly payments. Loans used to buy a primary residence get an exception: the repayment period can extend beyond five years, with the exact length set by your plan document.⁴ Some plans permit 10, 15, or even 25 years for a home purchase loan. Interest is typically set at prime plus one percent, and it goes back into your own account rather than to an outside lender.

If you leave your employer, whether voluntarily or through a layoff, the plan can require you to repay the full outstanding balance. If you cannot, the unpaid balance is treated as a taxable distribution and reported on Form 1099-R. You would owe income tax on that amount, and if you are under 59½, the 10% early withdrawal penalty also applies. You can avoid that outcome by rolling the unpaid balance into an IRA or another eligible retirement plan by the due date, including extensions, for filing your federal income tax return for the year the loan became a distribution.⁴

How Much You Can Take as a Hardship Withdrawal

A hardship withdrawal is permanent. You do not repay it, and your balance is reduced for good. Costs of buying a primary residence qualify under the IRS safe harbor rules, and the qualifying costs include the down payment and closing costs but exclude ongoing mortgage payments.⁵

There is no fixed dollar cap, but the amount is limited to what you actually need. You can include enough to cover the resulting federal income taxes and, if applicable, the 10% early withdrawal penalty, so the net figure covers the purchase costs. If your down payment is $30,000 and the taxes and penalties would add roughly $10,000, you could request approximately $40,000.⁵

The available pool is usually your own elective contributions. Most plans exclude employer matching contributions and investment earnings from the hardship-eligible balance, though plan rules vary. A hardship distribution cannot be rolled into an IRA or another retirement plan; the money leaves the retirement system for good.⁵

Taxes and the 10% Penalty

A 401(k) loan triggers no immediate taxes as long as you stay within the federal limits and repay on schedule. Tax consequences arise only if you default or leave your employer without repaying.

A hardship withdrawal is taxed as ordinary income in the year you receive it, unless it comes from designated Roth contributions.¹ If you are younger than 59½, the IRS imposes an additional 10% tax on the taxable portion.² Any taxable distribution paid directly to you is also subject to a mandatory 20% federal income tax withholding, which is only an estimate against your actual bill.⁶ State income tax may apply on top of that.

The First-Time Homebuyer Exception Does Not Apply Here

The tax code’s $10,000 penalty-free first-time homebuyer withdrawal applies only to IRAs, not to 401(k) plans.⁷ A hardship withdrawal from a 401(k) for a home purchase carries the 10% penalty if you are under 59½, whether or not you are a first-time buyer. The SECURE 2.0 Act of 2022 included a provision for a new penalty-free first-time homebuyer withdrawal from employer plans, but IRS implementation guidance has been limited. Check with your plan administrator for the current status before relying on it.

Loan or Hardship Withdrawal: Which Fits Your Situation

If your plan offers both and you need $50,000 or less, a loan generally costs less in taxes and preserves more of your retirement savings. A hardship withdrawal makes more sense when you need more than the loan cap allows, or when adding loan repayments on top of a new mortgage would strain your budget. The core differences:

Repayment: a loan is repaid with interest to your own account; a hardship withdrawal is permanent.
Dollar limit: loan capped at $50,000 or half your vested balance; hardship withdrawal has no fixed cap but is tied to actual need.
Tax impact: loan has none if repaid; hardship withdrawal is taxed as ordinary income and often carries the 10% penalty.
Withholding: no withholding on a loan; 20% mandatory federal withholding on a hardship withdrawal.⁶
Job-change risk: leaving your employer can turn an outstanding loan into a taxable event; a hardship withdrawal has no ongoing repayment.
Retirement impact: a loan can be rebuilt through repayment; a hardship withdrawal permanently removes the money and its future growth.

Documents You Will Need

Whether you apply for a loan or a hardship withdrawal, the plan administrator needs proof the purchase is real and documentation of how much you need. Gather these before starting:

A signed purchase agreement showing the property address, purchase price, and required down payment.
For a hardship withdrawal, a detailed closing cost estimate from your lender or title company justifying the total amount requested.
The closing date, so the administrator can process funds within your timeline.
The correct reason code on the application, identifying the purpose as a primary residence purchase.

Check that the dollar amount on your application matches your purchase agreement exactly. Administrators routinely reject requests that fail to match supporting documents or lack sufficient proof of financial need. Processing typically takes 5 to 10 business days after documents are verified, and funds are delivered by direct deposit, a check to you, or a check to the title company. Coordinate with your title agent early so a processing delay does not put your closing at risk.

1
Internal Revenue Service. Retirement Plans FAQs Regarding Hardship Distributions
2
Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
3
Internal Revenue Service. Retirement Plans FAQs Regarding Loans
4
Internal Revenue Service. Retirement Topics – Plan Loans
5
Internal Revenue Service. Retirement Topics – Hardship Distributions
6
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
7
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions