Thanks ALL. Very good detailed information. I appreciate it.
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The tax reform of 2018 has stretched the repayment window for outstanding 401k loans after leaving a job. Prior to tax reform, you had only 60 days to repay the loan in full.
Under the new tax reform, if you leave your job during 2019, you will have until April 15, 2020 to repay, or an extension can be granted until October of 2020. This is good news for those who took the VSP and have outstanding 401k loans! Especially if you find a new job in 2019!
I highly suggest talking with a tax accountant who is familiar with the new tax reform guidelines.
You do not have to pay back 401k loans. You can default. If you default, you have to pay taxes on the outstanding balance. If you pay it back, you will pay it back with after tax money and when you withdraw it, you will pay tax on it again. That is true even if you were still working and paying it back though payroll deductions but without a job, you may not want to take a chunk after tax money to use for that. You can also get a coupon book from fidelity to pay it back in payments.
401k loans do not have to be paid back, BUT if you don’t pay it back and you are under 59 1/2 years old, you might owe a ten percent penalty as well as having to pay tax on the income as a distribution. I say you might have a penalty because you might not even if you are under 59 1/2, because if you are separated from your employer where you have the 401k and you are at least 55, then there’s no penalty but the unpaid portion will still be treated as a taxable distribution. For example, if you take out a 15,000 dollar loan and don’t pay it back, the penalty is 1,500, and the 15k is considered taxable income. Subject to the previously discussed rules. I have a small loan out that I will pay back out of my severance. You have ninety days to pay it back or it will be automatically treated as a distribution.