Calculating tax on roth 401k loan default upon job change

[thegoberhome]

I am considering leaving a position for a much better opportunity with another company. I have a 401k loan that is part Roth 401k with a balance of approximately $30,000, and I'm trying to decide whether to default on that and pay the taxes and penalties or if it's worth my while to roll it over onto a line of credit.

If I choose default and pay the tax bill, is the deemed distribution be allocated proportionately between the traditional 401k and Roth 401k? Or is it entirely just considered traditional 401k? 

If it's allocated, I have already paid taxes on the contributions for the Roth 401k when they were deducted from my paycheck - would I be required to pay the taxes on that amount again, or would I only be required to calculate the taxes on the gain? 

[dmertz · Accepted solution]

If you leave the company that has the 401(k) from which you obtained the loan, the loan would be satisfied with an offset distribution, not a deemed distribution, and would not constitute defaulting on the loan.

You would have to find out from the plan administrator what portion would be an offset distribution from the traditional account and what portion would be an offset distribution from the Roth account.  You would need to take the answer to that into account to determine how much you would be wrecking your retirement savings and how much would be subject to tax and early-distribution penalty.  The only portion of a distribution from the Roth account that would be taxable and subject to an early-distribution penalty is the portion that is earnings.  A distribution from a Roth 401(k) is part basis and part earnings in the same proportions as the amounts in the entire Roth 401(k).

You have until the due date, including extensions, of your tax return for the year in which the offset distribution occurs to roll the money over to another retirement account, should you be able to come up with the money.