401K Loan still due?

Forum|Forum|7 years ago
June 7, 2019
15 replies
108 views

I was taxed on a 401K loan after leaving company. The tax and other related early withdrawal penalties were paid in 2015 as part of tax filing process yet my 401K administrator still shows the loan as outstanding. Is the loan still due?

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VolvoGirl

Level 15

Gee I wouldn't think so. They gave you a 1099R for it back in 2015? For the full amount? Only the plan would know. You need to talk to them and ask them why.

Opus 17

Level 15

When you end your employment, you have 60 days to repay any outstanding 401(k) loan. If you don't repay the loan, it is deemed to be a distribution, and is subject to regular income tax plus an early withdrawal penalty if you are under age 55. At that point, since it is a distribution, it is no longer a loan. (Not only do you not have to pay it back, you can't pay it back. You can only deposit money in a 401(k) via payroll withdrawals. You can't legally put money in that account now for any reason, unless you convert it or transfer it or roll it over to a private IRA. And then any deposits are ordinary contributions subject to ordinary contribution rules and limits.)

tulrich00Author

Level 2

Thank you. Recordkeeper insists loan is still active because it defaulted though no monies are due.

dmertz

Level 15

If you did not default on the loan prior to separating from service but the loan simply became due upon leaving the company, the company should have processed an offset distribution (code 1, 2 or 7 in box 7 of the Form 1099-R), not a deemed distribution (code L). An offset distribution satisfies the loan and your 401(k) balance is reduced by the amount of the offset distribution. With the loan satisfied in this way, the loan should no longer be shown as active.

tulrich00Author

Level 2

I did not default on loan while still employed.

MightyHet

Level 2

Hello, sorry if this question has been asked before... I have a defaulted 401k loan that I've already taken the IRS hit on several years ago. The plan administrator site says that, "the defaulted loan amount has been reported to the IRS as a taxable distribution from your retirement plan, and the loan balance still remains outstanding. As an outstanding obligation under the plan, payments must continue until the loan is paid in full (including post default interest accrual) or the loan is offset upon a full distribution from the plan."

If I leave this employer would they still deduct the defaulted amount from my 401k balance they owe me even though I already satisfied the IRS obligation?

dmertz

Level 15

MightyHet, if you do not entirely pay back the loan when you leave the employer, the balance to your credit in the plan would be reduced by the amount of the outstanding loan, but that reduction would not be taxed a second time. Amounts that you did pay back after the deemed distribution become after tax basis in the plan that would proportionately reduce the amount of any distributions that you subsequently receive from the plan, so the paid-back amounts are not taxed again either.