Trying Rollover 401K with Loan balance to an IRA accout
Hello,
What is the best way to handle rolling over a 401K with a loan balance to an IRA account without being heavily penalized? I have a new job and still waiting on the 401K rep to provide the different options but I would like to know on hand from other sources myself.
Permalink Submitted by Alan - IRA critic on Fri, 2021-10-22 14:44
You cannot roll a 401k loan balance to an IRA. IRAs do not permit loans. However, if your new job’s 401k offers loans AND will allow you to rollover the old 401k with the outstanding loan into the plan, you would have that option. Your former employer will probably give you 90 days or so to bring the loan current or would issue an “offset distribution” in which the plan balance is reduced by the amount of the outstanding loan. In that process you could roll over the remaining plan balance to an IRA, and would have until your tax due date including extensions to replace the loan balance with an IRA rollover. With an extension you would have almost a full year to come up with the money to complete the rollover of the offset distribution amount to your IRA. So there are various options available, just not the one you posted.