What Happens if A Loan Defaults?

If a loan cannot be repaid for any reason, or if repayments are made late, it is considered in default.  When a loan is in default, the remaining balance left unpaid is regarded as a “deemed distribution” from your retirement plan, subject to federal and state income taxes. 

The plan’s terms will generally specify how the program handles a default. Learn more about your loan specifics in your plan's Summary Plan Description (SPD) and/or Loan Procedures, which can be found on your Vestwell portal. You can access these materials by following the steps below:

    1. Log in to your Vestwell portal.
    2. Select the second to last tab on the left, called 'My Plan.'
    3. Your plan documents and notices are in the 'My Plan' tab.
    4. Navigate to the 'Plan' tab, navigate to the 'Program Notices', and select the document you want to review.

A plan may provide that a loan does not become a “deemed distribution” until the end of the calendar quarter following the quarter in which the repayment was missed. 

So, if you miss your June payment, the loan will be in default if no payments are made by the last day of the next quarter, which would be September 30.

If you have any questions, please email us at help@vestwell.com.