I want to rollover my 401k cause I recently left a company but I still have 2 outstanding loans?

Question

I have 2 loans i took from the 401k . Will they get paid off from the balance of my 401k when I roll over? Will i get taxed?

Answer 1

My first suggestion would be to check with the administrator of your old employer's 401(k) plan. I am pretty confident that the terms of the 401(k) plan govern how loans are treated during the roll over. The administrator will be familiar with this situation, because it's probably pretty common.

I know the 401(k) plan at my current employer states that loans that are not repaid are considered distributions if you roll your funds out of the plan.

If they are considered distributions, not only will you be taxed on them, but you will also have to pay the 10% penalty imposed by the IRS.

I'm not sure what you mean when you ask, "Will they get paid off from the balance of my 401k when I roll over?". But I can say that rolling over your balance into a new plan or into an IRA is not going to make those loans disappear. They will either need to be paid off by you or they will most likely be considered distributions.

I should also state that this is all dependent upon your age. Penalties typically apply if you're under age 59 1/2, but there are some exceptions. Check the following link for more information.

Answer 2

If you roll over the balance the loans will not get paid off but they will get distributed from the plan and become taxable to you. Since you rolled the money over there is no cash to take the withholding from. So, come tax time you'll owe the tax on the balance plus the 10% excise tax penalty. If you're going to do this I'd advise you to wait until January and then adjust your federal withholding on your job to account for the tax bill that will be coming.

One thing I'd check is to see if your new employer will accept a rollover loan. This would require you to roll over the entire account balance into the new plan (rather than an IRA) but it would be worth it to avoid the taxation. You'd simply transfer the note and continue making loan payments until the loans are paid off. This is the best route you can take but your employer is not required to accept them.

Answer 3

Yes, you are in a bad position. Usually when you leave the company you need to pay off the loans. It's not unusually for the loan balance to be treated as income - which increases your income tax. However, more expensive is the penalty you now have to pay for an early withdrawal from your 401K plan. I've heard of some people who take a credit card advance to pay off their 401K loans because that interest is less than the penalties assessed by the IRS for early withdrawals.

Answer 4

You will need to pay those loans back ASAP to avoid taxation and penalties.

If you don't pay them back you will pay ordinary income tax (10%-35%) plus a 10% penalty on the outstanding balance of the loans.

Answer 5

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Answer 6

they gone tax the hell out of you and gone laugh while they doing it