I have a 401K loan, cannot repay. What to do if let go?
18 replies (most recent on top)
I believe you can continue to make the mothly payments on the loan as long as you keep it as a 401k and don't transfer to an IRA
You will be 1099ed. Taxed as ordinary income + 10%. So add to your w2 pile when filing. No hit to credit score on defaulted 401k loan.. 1099 will come in late january. If there is a riff or whatever. VZ will pull out the taxes after figuring out your other balances due to you or roll over. Contact Fidelity for verifcation.
Whatever amount you owe will be taxed as an early withdrawal. Taxes are about 35%
Have you considered bankruptcy ?
Call fidelity to get the answer you need.... they will know the correct answer and can work with you.
The first thing - don't panic. You have several months to figure this out. Think about home equity loans, refinancing your mortgage, low cost credit card loans, and there are short term (60 days) loans from your roll over IRA. Spend the time to figure put your options - you should have until April 15 if you are off payroll this year.
You need to meet very specific criteria to do a hardship withdrawal. Losing one's job doesn't necessarily qualify. It's for things like medical expenses, tuition, housing costs and for the specific amount needed to accomplish that. You would still owe taxes and if < 59.5 may still incur a 10% penalty.
Contact Benefits for specifics and a tax expert or financial planner, but you should try your best to repay the loan with payments as withdrawals can really impact your retirement.
Hardship withdrawal
If you can't repay it in full, it converts to a withdrawal and is subject to penalties and taxes.
happened to me and @a7 is totally correct
I absolutely love how people jump in and help each other here. Imagine trying to reach HR with a Q like this - it'd take forever and they will give you a runaround. I am not saying we should use layoffs dot com as the definitive source for answers but it's very cool that you can at least get some feedback and direction, you still need to do heavy lifting on your own but this does help.
If laid off, 401k loans must be repaid by the tax filing deadline... Or the plan can define the date, I do not know if we have this - you'd have to call them... If you do not repay, the unpaid loan is treated as a taxable distribution from your 401k. You will owe income tax on that amount, and if you are under 59.5, there is a 10% early withdrawal penalty too. The loan will not go to collections like a regular loan, the hit is mainly on your taxes + 401k savings. I'd call to confirm the deadline and amount, then talk to your tax person so you can plan for the bill - if you dont have the tax accountant, try AI of your choice but put it in a deep thinking mode as the light version will butcher it and will skip details.
Contact HR answers
Give up on life.
You have to repay if let go. You may look into getting a loan from the bank if that's the case.
you can try this hashtag too
https://www.thelayoff.com/h/401k
or #401k
If possible, continue to make payments on it. Otherwise, take a 401K withdrawal (which may get penalized) to repay the loan.
We had this question before, here is the thread:
@OP+1ka23k59a
or
https://www.thelayoff.com/t/1ka23k59a