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Todd Pouliot, AIF
Gateway Financial, LLC
Address: 9821 Olde 8 Road, Suite M, Northfield Center, OH 44067
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If you have a 401k loan and lose your job, the situation can be quite challenging. It can leave you wondering what will happen to your loan and how you will repay it. Losing your job can be tough, especially if you have outstanding bills to pay. Having a 401k loan adds to the stress since you have to figure out how you will settle the balance.

First, it’s crucial to understand what happens to a 401k loan if you lose your job. A 401k loan is a type of loan borrowed against your 401k retirement account. The loan agreement requires you to repay the loan over a set period, typically five years, with interest. The interest on a 401k loan is lower than that of other loans, such as personal loans or credit cards.

If you lose your job while still repaying a 401k loan, you’re generally required to repay the balance in full within 60 days. Failing to do so will result in the outstanding balance being considered a distribution subject to income taxes and early withdrawal penalties if you don’t reach age 59 1/2. Therefore, it is essential to know how much time you have to repay your loan to avoid losing money in taxes and penalties.

Additionally, it’s worth noting that any unpaid 401k loans, including any accrued interest, count against your annual 401k contributions. If you’re unable to repay the loan, this may limit your ability to contribute to your 401k retirement account in the future.

It’s crucial to consider the options available to you if you lose your job and have a 401k loan. If possible, try to repay the outstanding balance within the given 60-day period. If that’s not an option, you may consider rolling over your 401k balance to an individual retirement account (IRA). This will protect you from paying income tax and withdrawal penalties, although it won’t relieve you of the outstanding loan.

Another option is to contact your former employer to see if they allow you to make payments on the loan. While not all employers allow this, some do, and it can be an excellent way to continue repaying the loan over time.

In summary, losing your job while still repaying a 401k loan can be challenging, but it’s essential to understand your options. By understanding what happens to your loan and the available options, you can make informed decisions that could save you money in the long run. Remember, it’s always best to seek advice from a financial advisor or a qualified tax specialist to ensure that you protect your finances while making the best decisions for your future.