so i'll start by saying i know a 401k loan isn't a wise decision but circumstances couldn't be helped.
i'm on a team that is about 95% certain we are being displaced - they are sending our work to India.
does anyone know how the 401k loan goes w/ displacement/severance plan? i'm guessing they take out the total due amount from the severance pkg? i'm looking online and haven't yet found anything that says...
7 replies (most recent on top)
You have to pay it back. Suggest you go and get a loan from a credit union or someplace. If not Empower will disburse 401K funds and withhold penalty tax.
Reach out to Empower directly.
I,have one as well and was displaced. They continue deducting from payroll during your notice period. Once you are “officially “ on salary continuance the payments are no longer deducted. Options are to a) have the remaining balance “forgiven “ as a distribution, b) pay the balance off from your own funds, or c) continue making payments. On option b, I attempted to transfer funds from a Roth IRA but was advised on the Empower website that it could not be paid with retirement funds. I chose option c and had to have the remaining balance reamortized over the remaining loan term with payments converted to monthly instead of bi-weekly.
Good luck.
It's in the FAQ, section 5.3.
They list the options as:
- Repay in full
- Continue making payments directly
- "Request a final distribution of your 401(k) Plan account balance, with the promissory note for the 401(k) Plan loan distributed in kind. In other words, your total account balance (which includes the outstanding 401(k) Plan loan amount) will be reduced by the outstanding 401(k) Plan loan amount, and the promissory note will be canceled. This will result in the loan balance, plus any accrued interest, automatically being declared in default and deemed a taxable event, which may also be subject to early withdrawal tax penalties."
I copy and pasted #3 because it's not something I'm familiar with, but sounds like #3 is what the other reply was talking about in terms of it counting as a taxable distribution.
The first reply (bottom) says you can make payments yourself, but that is not what I was told in the displacement briefing. They said you had X days to repay it in full or else you are hit with both the 10% early withdrawal penalty if you're under 59.5 years old, plus ordinary income taxes on the full outstanding balance.
I'd look into ways to repay the loan or take out an alternate loan against your house or something to repay the 401k sooner than later because good luck taking out a 2nd mortgage or a personal loan after you've been laid off.
I'm not 100% sure about Wells (or if employer even matters - this might be more of an IRS thing), but I did that at a previous employer. I took a 401k loan and quit before it was paid back.
When I inquired with the 401 servicer, I was told I could either pay it back, or if I didn't pay it back, the remaining balance would be considered an early disbursement instead of a loan (aka more taxes owed at year end).
The order of operations for me was:
- Take the 401k loan
- Start paying it back via payroll deductions
- Quit my job, which ended the payroll deductions for loan repayment
- Got a letter/email from the 401 servicer that if I don't pay the remaining balance by a certain date, it'll be considered an early disbursement.
I ended up accepting the remaining balance as an early disbursement because that was easier on my pocketbook at the time.
No you will have options and can move the payment to be paid directly by you instead of through your paycheck or you can have it deducted from your total amount in 401k. When you get displaced talk to a tax professional to see what is best!