topic Just found out I have a defaulted loan from my 401K from previous job. It says deemed. I thought the company had taken this out of my severance. How do I handle this now? in State tax filing

Just found out I have a defaulted loan from my 401K from previous job. It says deemed. I thought the company had taken this out of my severance. How do I handle this now?

kmurphy73 — Wed, 05 Jun 2019 02:26:07 GMT

I had no idea this was defaulted. I've been gone from the company since August 2016.

The company will issue you a Form 1099R and this will be...

DianeW — Wed, 05 Jun 2019 02:26:08 GMT

The company will issue you a Form 1099R and this will be reported as taxable income from a retirement plan. As such, if you are below age 55, you will also have a 10% premature distribution penalty on the taxable amount.

You should confirm whether they actually did withhold and repay the loan back to your 401(k). If not, it is taxable to you as noted.

I feel so dumb. I looked on the site under my 401 plan do...

kmurphy73 — Wed, 05 Jun 2019 02:26:10 GMT

I feel so dumb. I looked on the site under my 401 plan documents and there is no 1099R showing for 2016 which is when I was laid off. I'm also under 55. If I report this as income does that mean I don't repay it back to them?

If the loan was not in default at the time you separated...

dmertz — Wed, 05 Jun 2019 02:26:11 GMT

If the loan was not in default at the time you separated from service, they should have processed this as an offset distribution (reported as a regular distribution even though the money went to pay off the loan) rather than a deemed distribution which just makes the outstanding amount taxable but does not satisfy the loan. A TurboTaxDianeW said, you need to contact the plan administrator to make sure that the loan amount has been offset and that you no longer have an outstanding loan.

@dmertz Thank you for the additional information.

DianeW — Wed, 05 Jun 2019 02:26:13 GMT

@dmertz Thank you for the additional information.