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SS5
New Member

Separating from my company and have an outstanding 401K loan balance (1st home purchase) & if defaulted am I still subject to the 10% penalty?

Can I also avoid federal income tax if the loan is offset & the loan is withheld from total rollover?  And I do not add the cash to the ira to pay it off

1 Reply
Rainman12
Level 10

Separating from my company and have an outstanding 401K loan balance (1st home purchase) & if defaulted am I still subject to the 10% penalty?

A 401k loan, if defaulted, becomes a distribution subject to full taxes (including 10% penalty). First home exception applies only to IRAs.

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