401k loan and withdrawal

PFD
PFD Member Posts: 1 Newcomer
in Situation & Life Changes

Hi, I’m needing some guidance. I took out a 401k loan from my job about two months ago. My situation is changing at work, and I may need to quit. If I cash out the rest of my 401k, what happens to the loan? Would I be hit with the penalties and early withdrawal on the loan amount, in addition to the penalties and early withdrawal on the balance of the 401k? The loan did say I could continue to pay back the loan on my own, but I’m not sure what that looks like if the rest of the balance was taken out.

Also, if I did cash out the rest of the 401k, are the taxes and penalties withheld, or do I get a lump sum and have to pay the taxes and penalties on my next filing?

Answers

  • GregW
    GregW Star Posts: 27 image

    If you do not make arrangements to repay the loan, the balance would be deemed a distribution and would be taxable and subject to penalty if you are under 59 1/2, unless an exception applies.

    Normally, if you cash out, there would be mandatory withholding of 20% - that may or may not be enough to cover the tax and penalty which would be calculated when you file for the year.

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