Loan Payoff at 401k rollover

NOT HAPPY HERE!

Here's the deal. Example is for clarity.


Total 401K is $100,000.00
Outstanding loan is $15,000.00


Thats it, now I lost my job of 30 years.


Administrators pay off loan of $15000.00 and rollover $185,000.00 to a IRA. They take or apply nothing to the $15,000.00. No 20% withholding or 10% penalty.

I assume this would done because the $15000.00 is a cash disbursement to pay the outstanding loan. So thinking they have taken out the appropriate 20%and10%, I plan all other tax planning with that 20% withholding in place.


Is what they did legal.

Adding $15000.00 income with no withholding will put my taxes for2006 in a large negative. Not what I planned being on disability now.


THANKS for your help. All answers will be appreciated


Jim