401(k) loans are loans that allow individuals to borrow money from their 401(k) retirement savings accounts. The loan amount is typically limited to a percentage of the account balance, and the loan must be repaid within a specific time frame, usually five years. Interest rates for 401(k) loans are typically lower than for other types of loans, and the interest paid on the loan goes back into the individual’s 401(k) account. However, there are some drawbacks to 401(k) loans. If the borrower is unable to repay the loan, the outstanding balance is considered a distribution and is subject to income taxes and a 10% early withdrawal penalty if the borrower is under age 59 1/2. Additionally, the borrowed amount is no longer earning investment returns in the 401(k) account, which can negatively impact retirement savings.