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You can cash out the balance in the account, but unless you are 59 1/2 years of age, you will have to pay a 10% early withdrawal penalty on top of ordinary income taxes. If you do not pay back the loan, it will be recharacterized as a withdrawal and you will have to pay the penalty and taxes on that amount. There are exceptions to paying the early withdrawal penalty listed on this IRS page:
You can cash out the balance in the account, but unless you are 59 1/2 years of age, you will have to pay a 10% early withdrawal penalty on top of ordinary income taxes. If you do not pay back the loan, it will be recharacterized as a withdrawal and you will have to pay the penalty and taxes on that amount. There are exceptions to paying the early withdrawal penalty listed on this IRS page:
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