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 law extended the repayment period for your 401(k) loan until the due date of your tax return, including extensions. If you were affected by COVID-19, the 2020 CARES Act provides that you may be able to delay payments due from March 27, 2020 to December 31, 2020 for up to one year.
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. If you are also under age 59 1/2, you'll pay a 10% penalty for an early distribution. If you were affected by COVID-19, the penalty for early distribution may be waived.
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, you can rollover the offset amount to an eligible retirement plan. You have until the due date of your tax 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.