401K Loan after death
Hi,
My question is as follows:
Let’s say you have a 401K fully vested and worth $200K. You take a loan against it for $50K that still needs to be paid back when you die. Does the beneficiary receive a payout of $200K or would the amount owed be deducted first, and then the remaining balance be paid out as inheritence to the beneficiary (meaning $150K)?
Or
Does the beneficiary receive the full $200K, and the deceased’s estate is responsible for paying back the loan as a debt of the estate?
Permalink Submitted by mk foss on Tue, 2011-09-06 03:47
What does the loan say? Some 401k loans go into default if there is no payroll to deduct payments from – in that case, they become taxable.
The loan must still be repaid even if it is taxed because of a default unless the entire balance is withdrawn and the loan is offset. The loan could allow for a payment by the estate – but that would be specified in the loan document.
The loan is secured by the retirement benefit so the beneficiary would be unable to roll it over or have it distributed until the loan is dealt with.
Also, all 401k loans must be fully amortized so it’s unlikely that the loan would be exactly $50k.