Employers may require an employee to repay the total outstanding balance of a loan if they terminate employment or if the plan is terminated. Please see your specific plan’s Loan Procedures document on your portal for further details regarding repayment.
If you fail to repay your loan in full, the loan will be considered “in default.” This means that the employer will treat your outstanding loan balance as a distribution and report it to the IRS on Form 1099-R. A 1099 will then be issued to the former employee, and applicable taxes and penalties will apply.
Where Can I Go to Learn About My 401(k) Plan’s Loan Repayment Options?
Your 401(k) plan’s Summary Plan Description (SPD) and/or Loan Procedures, which can be found on your Vestwell portal, following the steps below:
- Log in to your Vestwell portal.
- Navigate to the "Documents" tab.
- From the "Documents" page, select the Plan tab.
- Scroll down to the "Program Notices," and select the document you want to review by clicking the PDF button.
How Do I Payoff My Loan in Full?
You can pay off a loan in full through your saver portal.
- In your portal, navigate to the "Account" tab. Once in there, select Loans.
- Click on your highlighted loan under the "Amount" section.
- Here, you will see two tabs, "Payment Schedule" and "Pay Off Loan." Select Pay Off Loan.
- You will see the total payoff amount here. Select Submit Repayment.
- If you have no saved accounts, select Add a New Account. Follow the steps to link your bank account that you will use for the payment. Vestwell will withdraw the amount from the account established within the next three business days.
When Will My Loan Default?
The last day of the calendar quarter following the calendar quarter in which you missed your first loan repayment. For example, If you forget your June payment, the last day of the next quarter would be September 30th.
What Happens if an Employee Terminates Employment With the Company and Has an Outstanding Loan Balance?
Please review your specific plan's Loan Procedures document on your portal for more details regarding repayment. However, your employer may likely require you to repay the total outstanding balance of the loan.
Can I Pay off My Loan if I Already Requested a Full Balance Distribution?
No, once you take a full distribution, the outstanding loan balance is reported as a taxable distribution to you, and a 1099 is issued. Loan balances must be paid off prior to taking a distribution to avoid the outstanding balance being reported.