401 K
If you have a loan against your 401K and it’s not repaid before you retire, what are the tax consequences when you retire ? And is there anything you can do to lessen them ?
M Holland
If you have a loan against your 401K and it’s not repaid before you retire, what are the tax consequences when you retire ? And is there anything you can do to lessen them ?
M Holland
Permalink Submitted by Alan - IRA critic on Mon, 2015-01-12 21:31
Say you had a plan balance of 100k with an outstanding loan of 20k against it. If you do an IRA rollover the 1099R will show 100k, but only 80k will be left for rollover to the IRA. The only way to reduce tax and possible penalty depending on your age, is to come up with the 20k within 60 days to complete the rollover. Otherwise, the 20k will be subject to tax and possibly penalty as well. Of course, if you had the 20k available, you probably would have paid off the loan to the plan before separation. This type of distribution is called an offset distribution because the plan offsets the outstanding loan balance. Now if you defaulted on the loan before separating, the plan could issue a deemed distribution, and you cannot roll over funds to prevent taxes on a deemed distribution. Check with the plan administrator to determine your options.