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I took a loan of 30k in Jan this year from my 401k. I left my job in March. My company plan allowed me to have the loan even after leaving them as long as i make the monthly payments. After couple of payments something happened with the automatic payment setup and the payments weren't made. I was really busy dealing with a family issue and didn't get a chance to check if payments were made. By the time everything was settled I got to know that my loan has defaulted and reported to IRS as a withdrawal. Now that money will be taxed and plus I have to pay a fine. This is really messed up. My 401k company checked my online logs and said nothing went wrong from their side. My question in this forum is that, how can I lessen the impact of early withdrawal? I would like to avoid a payment of 10k in taxes and penalty to IRS. Thank!
I'm not sure if this is relevant in your case, but one of the 401k loan repayment requirements is that the payments are made at least quarterly, so maybe you have time to make up the missing payments and not run afoul of the plan's requirements. Also plans are allowed a "cure period", so that the loan doesn't become a deemed distribution until the end of the quarter following the quarter in which the payment was missed. You could ask your employer if the plan had such a provision.
The IRS also has a Voluntary Correction Program the plan administrator could use for these types of mistakes. This assumes your former employer is willing to work with you on this.
The distribution/early withdrawal is reported on Form 1099R, normally filed by January 31st of the year following the year of default, so it's doubtful that this has already been reported to the IRS.
I would at least try to unravel this before giving up and paying the tax and penalty.
Last edited by boystuition; 09-08-2015 at 02:21 AM..
Look into boys tuition's suggestions. youre going to have to find a "legitimate out." Having been consumed with a "family issue" will not get you any sympathy with the IRS. That is one entity you don't want to play with. They'll work with you, but they WILL get their money.
Thanks all for the response. Should I go ahead and contact IRS now? Can anyone suggest where to begin with IRS?
I think what happened in my case was that - between Feb and Mar this year 3 payments to Fidelity's 401k loan went out from my pay check while i was employed by that company . It made me think that its all setup for recurring payments as my direct deposit was also setup. However, after I left that company not a single payment went out. I changed addresses twice and my mail notification didn't warn me that my loan is about to default. The emails I got from fidelity just said "Important notification about your 401k" please login to check (which of course I didn't check). They should have called me and checked since loan default has a big financial impact.
So they sent your postal mail, and a email. And did not follow up on them.
Now you want them to call you, If it went to your voice mail, would you then want them to personal come to your house and knock on your door to tell you?
Well every other financial institution calls you when you miss payment by a day for ex, car lease, car loan, personal loan, mortgage etc. 401k is a benefit and I believe they should have. May be I am wrong. No, I dont have them to come to my house
Well every other financial institution calls you when you miss payment by a day for ex, car lease, car loan, personal loan, mortgage etc. 401k is a benefit and I believe they should have. May be I am wrong. No, I dont have them to come to my house
Well its the Banks Money you have, and they want to get paid.
A 401K loan is your money, The Terms are clear when you take out the money.
After a month where it was not directly transferred from your bank account, you should have called fidelity to find out why.
Was your 401K Loan payback thru Payroll deduction (Out of your paycheck) or direct EFT from your checking account?
If it was payroll deduction, you are not getting paid so there is nothing to deduct from. Did you provide Fidelity with your bank account info for them to EFT it from? If you didn't how would you expect Fidelity to know your bank account Info?
Thanks all for the response. Should I go ahead and contact IRS now? Can anyone suggest where to begin with IRS?
I think what happened in my case was that - between Feb and Mar this year 3 payments to Fidelity's 401k loan went out from my pay check while i was employed by that company . It made me think that its all setup for recurring payments as my direct deposit was also setup. However, after I left that company not a single payment went out. I changed addresses twice and my mail notification didn't warn me that my loan is about to default. The emails I got from fidelity just said "Important notification about your 401k" please login to check (which of course I didn't check). They should have called me and checked since loan default has a big financial impact.
If the loan repayment was coming from your paycheck and your paycheck stopped coming how on earth could you have possibly thought it was magically being take care of?
They attempted to contact you multiple ways, you ignored them and yet you feel they should have attempted another method? Who's to say you would have answered their call? You didn't handle you or mail or email nor did you ever log on to your account. Accept responsibility for not handling things the way you agreed to
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