What happens if I have a 401(k) loan but later lose or quit my job?
If you leave the company (whether voluntarily or not) and have a loan against your 401(k), there are some new rules you should be aware of.
The 2018 Tax Reform bill extended the repayment period for your 401k loan until the due date of your return, including extensions. (Under previous law, the loan became due within 60 days of leaving your job).
If you don't repay the loan, the remaining amount (less any nondeductible contributions) will be treated as a taxable distribution and reported on a 1099-R. Also, if you are under age 59 1/2, you'll pay a 10% penalty for an early distribution.
A plan may provide that if a loan is not repaid, your account balance can be reduced or offset by the unpaid portion of the loan. However, the tax reform law allows you to rollover the offset amount to an eligible retirement plan. Instead of the usual 60-day rollover period, you have until the due date of your return, including extensions, to rollover the offset amount.
When you enter your 1099-R, we'll calculate any additional taxes or penalties on your outstanding 401(k) loan balance.