If you default on a loan from your 401k, you are considered to have received a distribution from your 401k. Whether or not you will have to pay the 10 percent additional tax on early distributions from 401 (K) plan depends on a number of factors, including your age.
In order to avoid the 10 percent additional tax on early distributions from qualified retirement plans, the following ALL all must be true:
(1) you received the distribution after you left the company
(2) you left the company during or after the calendar year in which you reached age 55
(3) your departure from the company qualifies as a separation from service or, you must meet one of the other exceptions shown in IRS Publication 560, Retirement Plans for Small Business and IRS Publication 575, Pension and Annuity Income.
