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About Shirley McAllister, CPP, PHR
Expertise
I can answer payroll questions, payroll tax questions, 401K questions. No stock option questions please and I have some knowledge of other pensions but am most familiar with the 401K pension.
I can answer U.S.and Canada payroll questions proficiently and have a good general knowledge of UK and South Africa and some knowledge of Australia and New Zealand Payroll procedures.
Please do not ask me homework questions I do not have time to answer them.
Experience
25 years with an international company in the Human Resources, Payroll and Payroll Tax areas.
Organizations
SHRM, APA, I.O.M.A.
Publications
I.O.M.A. and BNA
Education/Credentials
P.H.R., C.P.P., Canadian Payroll Administrator, Successfully passed APA class on UK Payroll Administration.
Boise State University Human Resource Certification
Awards and Honors
APA Hotline Citation of Merit for last 8 years.
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You are here: Experts > People/Relationships > Retirement Planning > Accounting, Payroll & Pension Issues > 401K loan in default
Expert: Shirley McAllister, CPP, PHR
Date: 5/6/2008
Subject: 401K loan in default
Question
My ex wife obtained a loan through her retirement plan at work; I seem to think it was a 403B plan. Before the loan was paid off she quit her job and worked for a short period (8 months) with another company but, recently went back to the original employer. She never did anything with the loan after she quit her job and now that she is back with the original employer, she was told her loan is in default and it will be reported to the IRS. MY question(s) are:
1) If she is able can she pay the balance of the loan off outright? Would this be done through the employer or the IRS?
2) What about the remaining amount, above and beyond the loan amount, that is still in the plan. If the employer will let her should she leave it with them and continue to pay in to the plan as usual via her bi-weekly pay?
3) Or should she move the total invested amount over to an IRA and totally forget about investing in the plan at work.
I am not sure what else to ask, so if you have other suggestions I would appreciate all you can provide.
Thanks!
Answer
If the loan is in default she will receive a 1099 at the end of the year for the amount of the defaulted loan. Usually the amount is taken from the pension plan to satisfy the loan upon termination.
She should be able to pay the balance of the loan off to the employer if the employer has not already sent something in to the IRS.
What she could ask her employer to do is take out another loan on the pension plan to pay off the originial loan and than pay off the second loan in monthly installments.
I think she should go ahead and contribute to the pension plan at work, however I know nothing about her work pension plan.
I only have the 401K, but in this type of sitution that is how I would advice my employee in a similar situation.
Shirley
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