My friend had defaulted on a 401k loan, is there a way he can pay it back and not incur tax penalty? He was supposed to have paid it by end of june, but didn't so it is in default. Is there some time till the end of the year or something for him to pay it back.
2007-09-16 14:15:37 · 3 answers · asked by . 4 in Business & Finance ➔ Personal Finance
He took out multiple loans one more than the maximum. So employer couldn't take any more money from his paycheck. Hope that explains how he defaulted. Regarding whether he already defaulted, that's what the 401k manager Fidelity tells him. But I wanted to find out if there is a grace period allowed by the IRS besides the standard answer given by Fidelity.
2007-09-16 14:25:55 · update #1
He should check with his employer's HR. Different plans have different rules about borrowing.
But if he actually defaulted on the loan, chances are he will have to pay the penalty and income taxes.
I just wonder how you default on a 401K loan. Isn't the money taken right out of your paycheck?
2007-09-16 14:23:16 · answer #1 · answered by bdancer222 7 · 0⤊ 0⤋
You said he took out MORE than the maximum number of loans. That should not be possible. Whoever administers the plan should not approve more loans than the plan allows. I'm not sure about the rule for loans that default while you still work for the employer, but I know you have 60 days to repay any outstanding 401(k) loans if you leave the employer. Using that time frame, your friend is 6 weeks too late.
2007-09-16 22:45:02 · answer #2 · answered by STEVEN F 7 · 0⤊ 0⤋
Can't hurt to ask.
...but, if he already defaulted, how does each expect to pay it back now?
2007-09-16 21:22:00 · answer #3 · answered by Wayne Z 7 · 0⤊ 0⤋