Do you have an existing 401-K loan? Are you planning to change jobs in the future? Do you want to know the repayment tax rules regarding 401-K loans? If you answered yes to all these questions, then it’s important that you understand the new 2018 tax law regarding 401-K loan default rules.
Hello, this is Noel Dalmacio, your ultimate CPA at LowerMyTaxNow.
Here are three things you need to know about the new 401-K loans default rules:
Example – On January 1, 2018, Dylan resigned from his job. At that time, he had an outstanding $50,000 401-K loan. He is under 59 ½ years old. Under the old tax rule, he must pay back and contribute $50,000 within 60 days to an IRA to avoid the loan being taxed as a distribution with a possible 10% early withdrawal penalty. Under the new tax law, Dylan has until April 15, 2019 (October 15, 2019, if he files an extension). That will give you as long as 21 ½ months from the date you separated from your employer to make the contribution and avoid recognizing the $50,000 as income with 10% penalty, if applicable.
To recap, make sure you remember these three things in case you separated from your employer and have an existing 401-K loan.
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Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.