Record Balances, and a Number Underneath Them
Fidelity's Q2 2026 Retirement Analysis, released September 3, put the average 401(k) balance at a record $155,800, up 10.5% in a single quarter — the largest quarterly jump since late 2020. The total savings rate held at 14.4%, with employees contributing a record 9.6% and employers adding 4.8%. "The combination of record account balances, strong savings behaviors and effective plan design tell an encouraging story about how Americans are approaching retirement," said Sharon Brovelli, Fidelity's president of Workplace Investing.
The same dataset carries a quieter figure. 19.5% of Fidelity's 401(k) participants have a loan outstanding against their account, up slightly from a year ago, and 2.8% initiated a new one during the quarter. Hardship withdrawals rose to 3% of participants from 2.6%. Certified financial planner Cathy Curtis told CNBC the uptick may be "a sign that household finances are becoming more strained."
Nearly one in five savers is carrying a loan. That is not, by itself, a problem. The problem is what a loan does when the job ends.
What a 401(k) Loan Is — and Isn't
Under IRS rules, a plan may lend you the greater of $10,000 or 50% of your vested balance, capped at $50,000. It must be repaid in substantially equal installments at least quarterly within five years, with a longer term allowed for buying a primary residence. The interest goes back into your own account. Repaid on schedule, the loan is not a distribution and creates no tax.
Research by Olivia Mitchell of Wharton's Pension Research Council and colleagues at Vanguard found roughly 90% of plan loans are repaid on time. The one in ten that isn't is where retirement money leaks out.
The Job-Change Trap
Leave your employer with a balance outstanding and most plans accelerate the loan. If you cannot repay it, the plan "offsets" your account by the unpaid amount. That offset is a taxable distribution — ordinary income, plus the 10% early-distribution penalty if you are under 59½.
The Pension Research Council found that 86% of participants with loans who left their jobs defaulted. Deloitte's analysis of that data, filed with the Department of Labor, models a 42-year-old who defaults on a $7,081 loan and then cashes out the remaining $70,106 balance. By age 65, at a 6% return, the combined cost is nearly $300,000 — and $217,647 of it is lost investment return. The loan is the smallest slice of the damage. The cash-out that follows does most of it.
The Deadline Most Borrowers Don't Know They Have
Since 2018, a "qualified plan loan offset" — one triggered by severance from employment or plan termination — does not follow the usual 60-day rollover clock. The IRS gives you until the due date of your federal return for that year, including extensions. For an offset in 2026, that means April 15, 2027, or October 15, 2027 if you file an extension.
The mechanics: the plan reports the offset on Form 1099-R with code M in box 7. You then deposit cash equal to the offset amount into an IRA or your new employer's plan. Do that by the deadline and the "distribution" disappears — no tax, no penalty. The offset must occur within 12 months of leaving the job to qualify.
Some plans also let departing employees keep making loan payments. Vanguard's How America Saves 2024 put that at 40% of plans. Ask before you resign, not after.
Practical Takeaways
- Check your loan before you change jobs. Confirm the balance and whether your plan allows terminated participants to continue repaying.
- If you are offset, look for code M. It tells you the extended deadline applies. You have until your tax filing date, with extensions, to replace the money in an IRA.
- Do not cash out the rest. The Deloitte math is clear: the follow-on cash-out, not the defaulted loan, destroys most of the value.
- Treat a new loan as a bet on staying put. The five-year schedule can collapse to a few weeks the day you leave.
Sources: Fidelity Q2 2026 Retirement Analysis (September 3, 2026); CNBC, "Average 401(k), IRA balances hit record highs — but more workers are raiding their accounts, Fidelity says" (September 3, 2026); PLANADVISER, "DC Account Balances Reach Record Highs in Q2"; IRS, "Retirement Plans FAQs Regarding Loans"; IRS Final Regulations, "Rollover Rules for Qualified Plan Loan Offset Amounts" (Federal Register, January 6, 2021); Deloitte, "Loan Leakage" (DOL public comment file); Lu, Mitchell, Utkus & Young, "Borrowing from the Future: 401(k) Plan Loans and Loan Defaults" (NBER Working Paper 21102); International Foundation of Employee Benefit Plans, "17 Tips for 401(k) Loan Program Design."
This article is educational and not tax or investment advice. Consult a qualified professional about your situation.