I have taken a loan against my 401K. I was paying it back as prescribed when I got laid off (Sept 2021. I contacted Vanguard to ask what to do. They instructed me that as long as i continued to make payments there were no problems. I continued to make the payments. When I secured a new job (Dec 2021) I rolled my 401K over. I paid the loan off with the proceeds from the roll over. Is there anything I can do to preserve that "tax-free" status from the loan proceeds?
Hi Kaylamanna,
If you have paid off the loan, then you have no further obligation to the prior 401k balance. You mention you paid off the loan with the rollover which does not seem clear as a rollover would not be permissible with an outstanding loan balance unless you were referencing a different 401k account. Nonetheless, a rollover 401k to another 401k has no tax consequences as it will appear as a code G in your 1099-R 2022. The document should be issued sometime in Jan 2023. Hopefully this information useful and informative.