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:
- Log in to your Vestwell portal.
- Select the second to last tab on the left called 'My Plan'
- Your plan documents and notices are available under the 'My Plan' tab.
- Navigate to the 'Plan' tab and navigate down to the 'Program Notices' select the document you want to review.
I want to pay off my loan in full; how do I do so?
If you are looking to pay off your loan in full, please email us at firstname.lastname@example.org with your full name, 401(k) Plan Name, and your intentions for loan payoff instructions, as this varies from plan to plan. We will then reply with the applicable loan payoff instructions.
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 miss 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 see your specific plans Loan Procedures document on your participant Vestwell Portal for further details regarding repayment. However, your Plan sponsor may likely require you to repay the total outstanding balance of the loan.
What happens if I already requested a Full Balance Distribution and then pay off my loan?
Depending on the timeline that you requested your full balance distribution and submitted your loan payoff, you may have an active account balance due to the loan payoff balance. This would mean that you would need to submit an additional distribution request. For example: If you took a full distribution of $15,000 and then paid off a loan balance of $5,000, you would then need to request the remaining balance of $5,000.