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    stevierayp's Avatar
    stevierayp Posts: 16, Reputation: 1
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    #1

    Dec 21, 2007, 06:49 PM
    401K loans
    What happens if you borrow from your 401K and don't pay the loan back?
    Just curious...

    Steve
    Fr_Chuck's Avatar
    Fr_Chuck Posts: 81,301, Reputation: 7692
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    #2

    Dec 21, 2007, 07:07 PM
    What does it say in the terms of your loan paper work. Normally it will be considered withdrawn at some point, and taxable.
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307
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    #3

    Dec 23, 2007, 01:35 PM
    Quote Originally Posted by Fr_Chuck
    What does it say in the terms of your loan paper work. Normally it will be considered withdrawn at some point, and taxable.
    Plus you will have to pay the 10% penalty for early withdrawal.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
    Computer Expert and Renaissance Man
    		  
    #4

    Dec 23, 2007, 01:43 PM
    First, every plan I've seen requires payroll deduction if you take out a loan. So the only way you wouldn't pay it back is if you leave the job. At that point, the outstanding balance would be declared an inservice withdrawal and you would incur tax liability and 10% penalty.

    You would have the opportunity to pay it in full. I've had outstanding loans when I've changed jobs. I took a short term loan to pay the balance, then rolled the 401K into the new plan and took out a loan to pay the short term loan.
    stevierayp's Avatar
    stevierayp Posts: 16, Reputation: 1
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    #5

    Dec 23, 2007, 07:59 PM
    Thanks, from everything I have read it sounds like you are better off NOT to touch your 401K unless you are willing to really pay a hefty penalty.
    Sounds like Im just going to suck it up,. maybe take a 2nd job... Just trying to get out of debt.
    It seems like the older I get the less I like to owe people money.

    Thanks for your answers

    Steve
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