What happens if I have a 401(k) loan but later lose or quit my job?
Non-hardship loans against your 401(k) must be repaid within 5 years if you stay with your employer.
But if you leave the company before the 5 years are up, the loan must be repaid within 2 months of your departure.
After 2 months, any outstanding loan balance (minus any nondeductible contributions) is treated as taxable income. In addition, if you're under the age of 59½, you'll also have to pay an additional 10% early withdrawal penalty on the outstanding loan balance. Ouch!
Your loan balance is reported on Form 1099-R, typically boxes 1 and 2a. Your 401(k) custodian will send your 1099-R in January or February of the year following your departure. When you enter your 1099-R, we'll figure any additional taxes or penalties on the outstanding 401(k) loan.