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I have a loan taken out on my 401k through Fidelity. The loan originated on this date: 12/19/2017. I will be leaving my current workplace and moving to a new workplace that uses John Hancock 401k.

Since I will be leaving I am required to pay off my 401k loan. Does anyone know how long I have to pay off my 401k loan if it originated on 12/19/2017? Do I have 30 days, 60 days or sooner?

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A quick search indicates that the rules changed as of 1-Jan-2018. Previous to that, the loan would be due 60 days after termination of employment (voluntary or involuntary) which is the case in the question asked. Under the new rules, the borrower has until the due date of the Federal tax return (plus extensions) to repay the loan without it being deemed a distribution subject to income tax and possible 10% penalty.

The IRS link below makes a note about rolling over the loan balance, but I believe that means that you would treat the repayment as a contribution to an IRA, so it would still be a repayment of the loan to avoid tax and penalties.

Fidelity is not able to make specific rules regarding 401k loans. This is governed entirely by the tax code.

https://money.usnews.com/money/retirement/401ks/articles/2018-03-12/new-401-k-loan-rules-make-borrowing-slightly-less-risky https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-loans

  • I think it may be important to add that in addition to the tax code limitations, that there could be specific employer plan limitations as well. It would be well worth investigating the specifics of the employer plan, in addition. – R. Hamilton Oct 31 '18 at 18:35
  • So my question is what the fidelity rep told me is incorrect? But what you are stating is I could roll it to an ira and pay monthly payments to pay back the loans to avoid taxes / fees, is that correct? – Jonny1978 Nov 1 '18 at 10:48
  • @Jonny1978 I address that partially above, but to be more clear - NO. If you take a loan, you must pay it back to the plan or pay the tax and penalty. If you terminate employment and miss the grace period from the plan, you can avoid the taxes by paying the loan back to an IRA but you still do that with cash-on-hand. You cannot simply "transfer" the loan to the IRA. irahelp.com/slottreport/… – Istanari Nov 1 '18 at 16:06
  • @Istanari - see my answer below it applies to not having to default. – Jonny1978 Nov 2 '18 at 17:28
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I just wanted to answer this if it helps anyone.

This is specific to Fidelity. I called Fidelity and I have good news... I don't need to pay it off right away.

There are three options:

  1. Pay off loan fully
  2. Pay off loan monthly
  3. Or default (this means you pay taxes)

Due to my current situation I can use option 2.

Again this is specific to Fidelity.

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    ...And that's wrong. Fidelity doesn't write the tax code and they're not a special case. Ever play the game of "telephone"? You just did. Your telephone conversation went sideways, and the person you were talking to forgot or missed your context, which is quitting your job. Their answer is applicable to staying in that job. And you heard what you wanted to hear. Nope, a Fidelity phone convo does not rewrite tax law. Your loan converts to a withdrawal X days after you leave the job. I'm not up on the latest value of X. – Harper Oct 31 '18 at 15:58
  • Out of curiosity, where does the interest go? And how you get around treating the loan as a withdrawal?Are they just rolling it to an individual loan? – D Stanley Oct 31 '18 at 15:59
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    @Harper My though was that Fidelity is giving the OP a personal loan in the amount of the 401(k) due, and using that to pay back the 401(k) loan. But I agree it seems fishy. – D Stanley Oct 31 '18 at 16:00
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    @DStanley while I could imagine such a financial product existing, it's certainly not a default happenstance. OP would need to make a credit application, take a hard inquiry on credit report, sign a new loan. It wouldn't happen without it being explained and disclosed at length. – Harper Oct 31 '18 at 16:04
  • Folks I just called fidelity for the second time and talked to their financial advisor experts for our plans and they said in fact this DOES exist in our plan. As long as I keep the money at fidelity and pay the monthly loan amount (around 600 bucks) there is no default and it does not get reported on my taxes. They mentioned there is a lot of information online but in fact under our guidelines for this plan I have this available to me. The only way it would put me in default is if I did not pay the monthly amount or I rolled it to an IRA. – Jonny1978 Nov 1 '18 at 13:55

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