Repaying 401K loan?

Question

Is it true that if I have, say, a $10,000 loan from my 401K at work and leave that employment, that I still have to pay it back?

I appreciate the answers so far. No, I'm not thinking of quitting to avoid payment. I've been there 17 years. It's just that I have my first grandbaby in Florida and wanted to move there. I'm also in the retirement system at work (separate from the 401K) so I feel my hands are tied as far as leaving. Guess I'll be doing alot of flying.

Answer 1

When you leave work, if you don't pay it back, it is considered a distribution and you will have to pay taxes on it(and if you are less than 59 1/2 you may be penalized as well).

Answer 2

When you started in the 401k program, you were to putting money away for your retirement. The rules are that you are to keep the money in there until you are 59 1/2. When you took the loan out you agreed to pay it back in installment payments. If you quit your job and have not paid the loan amount in full, your company might continue to allow you to make payments until it is paid off. If you choose not to, they will have to give you a 1099R with a classification of 1L which mean early distribution of a default loan. You will have to put it on your tax return as ordinary income (taxes based on your tax bracket) and probably pay a 10% penalty. There is only a couple ways to escape the penalty. No way on the taxes. When you put the money in, that money became pre-tax money, so no taxes were ever paid on it. Hopes this helps you.

Answer 3

You bet! Just because you borrowed against it durning your current employer doesn't mean that, that particular 401K is solely a retirement plan through them. That is a national and government controlled retirement plan my friend. If you're thinking you should quit your job just to get out of paying it - I'd think again.

Answer 4

Yes! You borrowed the money and you will owe it back.