Taking a NYCERS Pension Loan
The limits, the tax, and what it does to your pension

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Who can borrow, and how much

You can borrow from NYCERS if you’re an active member in Tier 3, Tier 4 or Tier 6 with at least one year of membership, you’re on payroll, and you aren’t behind on a current NYCERS loan. Members of a Tier 3 22-Year Plan can’t borrow at all. Tier 1 and Tier 2 members can, but under their own plan description and with a paper application (Form #301).

The loan comes out of your own contributions. NYCERS’s loans brochure (#911, August 2026) says a loan “cannot exceed 75% of the contributions, with interest, last posted to your MCAF account,” less any loan you still owe. Two more limits come straight from state law, Retirement and Social Security Law section 613-B: no loan under $1,000, and no more than one loan in any 12-month period. NYCERS says it isn’t allowed to make exceptions, “even in emergency situations.”

Your exact limit is in MyNYCERS, on the Loan Information page. That page also shows whether a new loan would be taxable before you take it.

What it costs

NYCERS’s loans page currently lists the rate at 6.2%: 6% interest plus a 0.2% loan insurance charge. The insurance means that if you die in active service, your beneficiary’s benefit isn’t cut by the balance, as long as the loan is more than 30 days old and not in default.

You repay through your paycheck. Each payment has to be at least 2% of your gross pay for the pay period, and big enough to pay the loan off within five years. You can pay it off early at any time, by check or online through MyNYCERS. NYCERS takes a $40 service fee out of each loan check, and charges $40 to change your payment amount, which you can do once in 12 months.

When a NYCERS loan becomes taxable

Most loans aren’t taxed. Federal tax law draws the line (Internal Revenue Code section 72(p)), and the NYCERS brochure puts it this way for Tiers 3, 4 and 6: a loan is taxable if the total you owe is both more than $10,000 and more than half of your vested benefit. If a new loan pushes your combined balance over $50,000, the amount above $50,000 is taxable.

The trap is refinancing. If you add to an existing loan and stretch the payments past the original five-year end date, the brochure says that will “most likely create a significant tax consequence.” When a loan would be taxable, NYCERS shows you three ways to process it (New Loan, Original Terms, Refinance) and you have to sign off on one before it pays out.

A taxable loan counts as ordinary income, and if you’re under 59½ the IRS adds a 10% penalty. While you’re still working, you can’t roll the taxable part into an IRA to avoid that.

Missing payments does the same damage. Go more than 90 days without a payment and the loan is in default: the balance can become taxable, you can’t borrow again until it’s paid off, and the death insurance stops (NYCERS Fact Sheet #710). If you leave City service before you retire, NYCERS sends a payment coupon so you can keep paying monthly ($5 per payment) or pay it off.

Retiring with a loan you still owe

This is the part that costs people the most. Your loan payments stop with your last paycheck. You can still pay off all or part of the balance until you file your Final Option Election and your benefit is finalized. Whatever is left after that permanently cuts your pension. NYCERS calls it an actuarial reduction.

The cut lasts for life, and it doesn’t pay the loan down. The brochure says it plainly: “The actuarial reduction is not a loan payment, therefore your outstanding loan balance at retirement will not decrease.” The one way out is to pay the full balance later. A state law, Chapter 511, lets you do that any time after you retire, and your pension goes back to the full amount from then on. It doesn’t refund the cuts you’ve already taken.

How big is the cut? NYCERS publishes it per $1,000 still owed, by your age at retirement. These are its figures for service retirements in 2026 (Fact Sheet #714). “Uniformed” means Correction and Sanitation titles.

NYCERS’s own example: retire at 61 owing $10,000 and your yearly pension drops by $734.10. If you retire on a disability pension, NYCERS says the cut can be larger.

Paying it off versus keeping the cut

This is a money decision, and it’s worth doing on paper before you file. A simple way to see it: divide $1,000 by the yearly cut. At 62 that’s about 13 years. Collect your pension longer than that and the cut will have taken more from you than the $1,000 you kept. That’s plain division, not a forecast. It leaves out what the cash could earn if you keep it, and taxes.

Where the payoff money comes from matters just as much. Pulling it from a 457 or an IRA has its own tax bill, and a pension loan also shrinks how much you can borrow from NYC Deferred Comp while you’re working: the Plan’s $50,000 cap is reduced by your highest loan balance from every City plan, pension loans included, over the past 12 months. Our NYC Deferred Comp guide covers those rules.

Tax at retirement has its own rules too. IRS rules make NYCERS treat a loan taken at or near retirement as a payout. You can roll the taxable part into an IRA; if you don’t, NYCERS withholds 20% for federal tax, and the brochure says there’s an extra 10% tax if you’re under 55. For the taxable part of an older loan you still owe, NYCERS mails a rollover letter about 30 days after you retire, and you have until your tax return due date for that year to roll it over yourself. Take those numbers to a tax professional before you decide.

Before you file for retirement

• Get your payoff amount in MyNYCERS, or call NYCERS at (347) 643-3000.
• Look up your age in the table above and work out the yearly cut on what you’d still owe.
• Decide before you file your Final Option Election: pay it off, pay part of it, or keep the cut.
• If you’ll roll a taxable amount over, check that the account you name can take a direct rollover from NYCERS.
• Bring the tax questions to a tax professional. What a loan costs you in tax depends on the rest of your income that year.

Common questions

How much can I borrow from NYCERS?

Up to 75% of your own contributions with interest, minus any loan you still owe, and at least $1,000. One loan in any 12 months. MyNYCERS shows your exact limit.

What is the NYCERS loan interest rate?

NYCERS currently lists 6.2%: 6% interest plus 0.2% for the loan insurance. Checked October 27, 2026.

Can I take a NYCERS loan in Tier 6?

Yes, if you have a year of membership and you’re on payroll. People who joined on or after April 1, 2012 are in a Tier 6 plan or a Tier 3 22-Year Plan; the 22-Year Plan members are the ones who can’t borrow.

Is a NYCERS loan taxable?

Usually not. It becomes taxable if you owe more than $10,000 and more than half your vested benefit, above $50,000 in total, if you refinance past the original five years, or if it goes into default.

What happens to my NYCERS loan when I retire?

Anything still owed when your benefit is finalized cuts your pension for life, and the balance never goes down. You can pay the full balance any time after you retire to restore the full pension from then on.

Is this the same as a Deferred Comp loan or an NYPD pension loan?

No. A loan from your NYC Deferred Comp 457 is a separate plan with its own rules; see what happens to a 457 loan when you leave. Police officers are in the Police Pension Fund, not NYCERS; see the NYPD pension loans lesson.

In Tier 6? See what your pension pays, and what retiring early costs, with the free Tier 6 pension calculator.

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