I changed jobs recently, not of my own volition. I'm now rolling over a 401k account with my previous employer to one with my current employer. Three years ago I took a 401k loan with a 10 year term which was used to purchase a home. It's now technically in default, since payments are no longer being deducted from payroll.
My understanding that the loan will be formally "in default", though no credit rating damage will occur, and that the disbursement is taxable. Can I reduce (or eliminate) the tax penalty by making an equivalent contribution to my new employer's 401k (or one of my other retirement accounts) this year? If not, what other options might I have? My current employer doesn't allow 401k loans, so that's not possible.
Update: I'm not able to pay off part of the loan balance. It's all or nothing according to the fine print, and unless I borrow part of it that won't happen.