Loan Repayment Upon Termination

Plan sponsors 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 participant Vestwell 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. Then 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:

  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 and navigate to the 'Program Notices' and select the document you want to review.

I want to repay my loan in full; how do I do so?

You can pay off a loan in full through your savers portal.

  1. In your savers portal, navigate to the ‘Account’ tab. Once in here, select ‘loans.’
  2. Click on your highlighted loan under the ‘amount’ section.
  3. Here, you will see two tabs, ‘ payment schedule’ and ‘pay off loan,’ select ‘pay off loan.’ 
  4. You will see the total payoff amount; select ‘submit repayment.’
  5. If you have no saved accounts, select ‘add new account.’
    Vestwell will withdraw the payoff 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 a participant terminates employment with the company and has an outstanding loan balance?

Please have a look at your specific plans Loan Procedures document on your participant Vestwell Portal for more details regarding repayment. However, your Plan sponsor 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.