What If I Change Jobs Before I Pay My Loan Back?
Posted on Mar 24, 2014 6:06am PDT
Q. Mackenzie T. of Colorado wants to know: "What If I Change Jobs Before I Pay My Loan Back?"
A. Brett Disdale from Pension Evaluators & QDROS Of Troyan, Inc Associates
Group, answers: "If you should terminate employment with an outstanding loan balance,
you will be required to repay the loan in full within 60 days. If you
cannot do this, the loan will be classified as distributable income and
will be in default. The outstanding balance will then be subject to income
tax (both federal and state) and subject to a 10% early withdrawal penalty
(if you are under age 59½).
This will also affect the distribution of your entire plan balance, in
that you will be taxed and amounts will be withheld for the full value
of your account, but your net distribution will be reduced by your outstanding
loan balance. In rare circumstances, some employers allow new employees
to rollover loan balances from a prior retirement program. However, a loan
cannot be rolled into an IRA.
When your loan defaults, you will receive a Form 1099-R which will show
you the exact amount to report. (A copy of this form is submitted to the
IRS.) You should receive this form by January 31st following the year in which your distribution occurs."
Brett Disdale
Lead QDRO Analyst
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