# How to deal with my job change & 401k loan that I can't fully pay back?

It's been 60 days since I changed my job and I have an outstanding 401(k) loan of $30K(+30k non loan amount). I have only$20K to pay and my 401k plan won't accept the partial amount.

I still didn't get my delinquency notice, so I don't know when and what are the rules to pay back.

If I don't get any notice, can I argue that I still didn't get the notice, or is it my duty to keep on top of it? When I called the call center they said that generally the loan is due in 90 days. She didn't know if I will get a notice with a grace period or not. What does such a notice generally look like; is there a grace period?

Let's say I get a notice saying that my loan is delinquent. Can I roll my whole 401k(I know i cannot rollover my loan) into my IRA, and pay into the IRA the partial amount to reduce my penalty and taxes? (meaning, 30k non-loan rollover, plus 20k )

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I am surprised that they won't accept a partial amount. –  stannius Jan 31 '13 at 20:18
Do you have a Roth IRA? –  user102008 Jan 31 '13 at 20:41
Do you have any IRA money right now? –  JoeTaxpayer Jan 31 '13 at 21:01
no. no money in IRA. –  purpletech Jan 31 '13 at 21:11
Is it possible that the money you borrowed to be added to your taxable income for the year you separated from your job and in this way you pay taxes at the end of the year. –  user12113 Dec 7 '13 at 16:09

Not getting a notice doesn't reduce or eliminate your contractual liability, you still have to repay the loan. Generally you have to do it within 90 days after leaving your job, that is the grace period.

If you don't repay the loan, it will be considered distribution, and taxable (including the 10% penalty). You cannot roll over a loan to IRA, you have to repay the loan to your 401k before rolling over. Partial roll over will be considered a distribution (including the taxes and the 10% penalty on the part not rolled over).

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what i heard was even though 30k of my loan has gone into delinquency, if i invest my partial amount into IRA i can reduce my penalty amount my that much itseems. –  purpletech Jan 31 '13 at 19:40
@purpletech so why not just pay off the loan? I thought you don't have 30K... –  littleadv Jan 31 '13 at 19:44
I said I have only 20k ( partial amount ) –  purpletech Jan 31 '13 at 20:19
@littleadv - This may not be allowed. I've not seen an IRA deposit negate the defaulted 401(k) loan. Some research is in order here, I'd say. The company should (but not sure if "must") accept the partial payment. –  JoeTaxpayer Jan 31 '13 at 21:00
Yeah, as I mentioned to @purpletech - better talk to a pro to verify it is an allowed solution. It does make sense to me though, as an indirect rollover. There's no condition on what the distribution form is, only the 60 days period. It might be that the defaulted loan distribution date would be the loan origination day, and that's where it is going to fail... –  littleadv Jan 31 '13 at 21:02

I just withdrew the the amount for the partial loan payment, so now I end up paying only partial penalty for the amount i needed to fulfil the loan.

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I think you could handle it in the following way.

Roll over your current 401k balance to 401k at your new job ($30,000) Take out a new loan from that 401k for$10,000 - and use the $10k, +$20k you have in the bank to clear your existing 401k loan. (You could also take out $15k, and leave$5k in the bank)

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It's well beyond the point where we can help OP, but this advice appears sound. I don't understand the downvote. –  JoeTaxpayer Sep 16 '13 at 18:19
The rollover triggers the outstanding balance as a distribution and is reported by the company to the IRS. Plus the transfer of the funds from plan a to plan b, and then as loan isn't instantaneous. –  mhoran_psprep Sep 16 '13 at 20:44

## protected by C. RossDec 8 '13 at 12:23

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