Do you have to pay off a loan against a 401k if you are changing jobs?

Question

I recently took an offer to work for a different company. I have a loan out against my 401k with my previous employer. I have two more checks coming from them that will take out a weekly amount towards my loan. Am I then obligated to pay the rest right away? Any insight would be greatly appreciated. Thanks

Answer 1

Unpaid 401k loans are treated as a distribution. You have to pay regular income tax on the amount borrowed plus a 10% penalty.
If you can't pay it back, take the hit and move on. It was your money anyway. BTW usually there are better ways to take out a loan. The advantage to a 401k loan is you pay back the interest to yourself. Plus they take the payments right out of your check.
Not bad at all. But I prefer to leave my retirement money alone for when I retire. But your situation doesn't sound so bad. How much was it for? Maybe you could alter your witholding at your new job so you won't have to shell out at tax time. (You could file 0 dependants and have them withhold a few dollars extra.) You just have to figure what wasn't paid back as additional income and roughly figure the tax on that. Plus 10% of the distribution.
Should be roughly one third of the outstanding balance. Not the end of the world.

Answer 2

10% penalty