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Asked 2/5/2010
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Can I avoid 10% penalty on 401k loan considered an early withdrawal when company shut down? I had taken out a 401k loan a couple years ago and was repaying systematically. In January 2009, my company was sold and went out of business and the 401k program was terminated and accounts rolled over into personal IRA rollovers. The remaining balance of the 401k loan has been treated as an early withdrawal and I received a 1099-R showing it as taxable -- and subject to the 10% penalty. However, I turned 55 in 2008. Can I use the "Separation from service in or after reaching age 55" as a waiver of the 10% penalty?
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Answer 1/3 - Submitted 2/5/2010
Answer 2/3 - Submitted 2/5/2010
Answer 3/3 - Submitted 2/6/2010
Unfortunately the only option would have been to pay it in full before the rollover, They should have given you this option. At this point it has been reported to the IRS as a distribution, and subject to tax and penalty. This is happening a lot lately, too many companies cannot afford to keep the plans--The do cost the companies quite a bit annually.
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