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Asked 7/21/2009
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In 2007 I took employer based 401k loan out with automatic payroll deductions. I am commission sales and some weeks did not have enough income to hav Today informed in default of loan due to missed payments. I am commissioned sales and some weeks I do not receive a commission check. I set up the payment by automatic payroll deduction and when I have commission the only amount that would come out of pay would be the weekly amt $72.11. Not much, I made enough money to easily pay for the loan, just some weeks did not have the funds for the weekly deduction. Employer says I am in default even though this is the first notification that there was an issue. Never has this been brought to my attention that it was an issue. I was informed that the system does not allow for me to make any personal payment or to catch up on missed payments. I am shocked that this has happened. I am an employee in good standing, not leaving and was told that I was immediately in default the first missed payroll deduction, but they said I could do nothing due to inability to take direct payments or instruct system to increase deduction the next pay. |
Answer 1/1 - Submitted 8/3/2009
True, once a loan is in default.. it is in default when it comes to retirment plans....
Payments cannot be made up...
This happens a lot with construction companies, since there is often a period of the year they are laid off..
Anyway, to avoid the tax and penalty on that amount, you would have to pay it back in full at this point.. if is does deem distributed.. (you don't pay it back in full) it will be taxed and penalized just like a distribution....
and unless you pay it back you will not be able to borrow from the plan again.
So.. in short.. yes they could have notified you, but they usually do not.. if you know payments are not made every payroll... then the ammortization schedule is not being kept..
Retirement plan loans are strictly regulated by the IRS-
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