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Loan Balance After Termination

The terms of your loan end the day you leave the company.  Therefore, the remaining balance may be deemed in default and taxable in the year the payments cease. To avoid your loan being reported as taxable income (and having the 10% penalty tax applied if you are under the age of 59 1/2), you will be required to pay off the loan in full prior to your loan going into default. A loan defaults at the end of the quarter after the quarter in which payments ceased. e.g. - You terminate service 7/5 (Q3), you have until 12/31 (end of Q4) to pay off loan.

Tax withholding does not apply if the loan default is your only distribution. If you receive a distribution of cash or property in addition to the loan default, tax withholding will apply to the entire distribution, but the withholding amount will not exceed the amount of cash or property (other than employer securities) you receive in addition to the default. You may not roll over the amount of a defaulted plan loan that is a taxable deemed distribution.

Review the Special Tax Notice Regarding Plan Payments

For instructions on paying off your loan balance please go here.

For questions regarding an outstanding loan balance, contact us.