Do I have to pay the money back before the time I agreed to paid the loan back ?
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Only one of the answers given is correct .. the other people don't know sh-t 😆
You must pay it back on schedule. If you don't, It'll be treated as taxable income in the year that the loan went into default.
I just paid most of mine off (was laid off in 2025). Not worried about the income addition, as am over 59.5. Didn't like it hanging out there. And, had the money at the moment to pay.
If you have an outstanding 401k loan that you are repying via payroll deduction at the time of your termination you will have to pay it off within about 30 days (or so) or face IRS penalties for early withdrawal.
@ah
Good point, but this is counter to your argument.
If you get a loan from say Citibank, after you pay $25 from your $100 , you send the remaining $75 to Citibank - the whole money is gone - you lose.
Opportunity cost - you are assuming the market will always go up. The market can crash for few years - e.g Covid period .
Plus your credit report is intact.
This information is readily available in the 401k plan documents.
@a8 While a 401k loan is often described as "paying yourself back with interest," it comes with several subtle financial traps, the most significant being the tax treatment of your repayments.
A couple primary downsides, specifically focusing on the "after-tax" repayment issue:
1. The "Double Taxation" Trap on Interest
This is the most common concern regarding after-tax money. When you pay back the loan, the money is taken from your net pay (after income taxes have already been withheld).
The First Tax: You earn $100, pay taxes on it, and send the remaining $75 to your 401k to cover the loan interest.
The Second Tax: That interest is now sitting in a Traditional 401k. When you retire and withdraw that same money, it is treated as ordinary income and taxed again.
The Reality: While the principal isn't exactly double-taxed (you are simply replacing the pre-tax money you took out), the interest you pay yourself is absolutely taxed twice.
2. Opportunity Cost of "Lost" Pre-Tax Growth
When you take a loan, you are selling off your investments (stocks/bonds) to get the cash.
The money you use to repay the loan is after-tax, meaning you have to earn more just to put the same amount back in.
If you are in a 24% tax bracket, you have to earn roughly $1.32 for every $1.00 you pay back to your 401k. This makes the "effective" cost of the loan much higher than the interest rate suggests.
No. This exact situation happened to me. It will be part of your severance package info, but I was able to change the payment schedule slightly and have payments withdrawn directly from my checking account.
@a5
While this is true , what you infer does not make much sense.
If you get a loan from a company, you pay with interest , if you get the loan from your 401K , the interest is paid back to you.
You are assuming that the withdrawn money in your 401k will have generated interest and dividends, this is a myth, the market can go down big or even crash.
Also , this is not reported as loan on your credit report
It is a good idea to actually get the loan from your 401K, just make sure you are not laid off during repayment , otherwise it is considered withdrawal after a time - except you pay back in full.
don't do it if you can avoid it. you are taking a loan on pre tax money and paying it back with post tax money .
yeah it turns into a withdrawal if you dont repay. taxable and early wothdrawal penalties unless you make the case that its for hardship purposes - not hard to do if you are laid off but you need your accountants help. unsure whether wells garnishes it from severance or just declares it a withdrawal if you dont pay immediately