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Asked 3/31/2009
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401k We borrowed against our 401K a few years ago and are making monthly payments back into the account. We would like to stop payments what do we need to do and what happens next? |
Answer 1/2 - Submitted 11/4/2009
If you stop making payments on a 401k loan, then the loan will immediately be changed into an early distribution. At the end of the year that you stop making payments, you will owe a 10% penalty on the total amount of your loan, plus all ordinary income tax on the full amount of your loan.
Answer 2/2 - Submitted 11/5/2009
If this is a payroll deducted loan , you Cannot ask your HR to stop the payments. Being it is monthly it sounds more like what used to be a "reserve" loan.. more like a line of credit..
It will default and tax and penalty will be due when you file the following year..
You will never be able to borrow from your plan again... unless the defaulted amount is put back into the plan....
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