Anyone know what happens if you have a 401k Loan and your position is eliminated? Will you be required to pay taxes on the loan or will it be forgiven as part of the severance?
9 replies (most recent on top)
Why does everyone have to offer advice ? For the love just answer the question or shut up. The loan was borrowed. This is so Target always have to provide a comment to a simple question.
You better have a damn good reason to borrow from your 401K... just saying.
If the loan is treated as a distribution you are taxed at your ordinary tax rate (your highest marginal rate for the year of the distribution. Additionally you pay a 10% penalty tax if you are not at least 59 1/2 years old. I agree with 93. Never borrow from your 401(k) except in a life or death emergency.
Common sense...don't ever borrow against your 401k.
If you are laid off and dont pay off the 401K loan the loan will go into default. At this point the loan converts to a early distribution subject to tax an penalty figure about 20% to 25% of the remaing balance of the loan. You will receive a form 1099-R for you 2015 tax preparation.
If you are laid off and dont pay off the 401K loan the loan will go into default. At this point the loan converts to a early distribution subject to tax an penalty figure about 20% to 25% of the remaing balance of the loan. You will receive a form 1099-R for you 2015 tax preparation.
In all likelihood the unpaid amount of the loan will be considered a distribution, so it will be taxable including the penalty tax for early withdrawal. It's definitely something to discuss with a retirement plan administrator.
You can either repay the loan or it will be treated as a taxable distribution. This has nothing to do with severance. It's tax law.
Per the fine print on the benefits site it says that you have to pay it off in full by the end of the quarter following your last date of employment. If you don't then they add it to your taxable income for the year AND you are taxed additionally for taking an early withdrawal from your 401k. I have a small loan against mine, so I am using my severance to pay it off immediately.