Accounting, Payroll & Pension Issues/Loan from 401K


I took a loan from my 401k, separated employment and then was rehired less than 3 months later.  Upon being rehired,i questioned my benefits manager and plan administrator regarding my outstanding 401k loan, as I wanted co-ordinate the loan payments into payroll deductions. The plan administrator sent me a revised amortized loan scheduled and stated that I was obligated to repay the balance on the loan plus interest and they were going to declare my loan as an early distribution and sent me a 1099R.  Now I am required to pay the early distribution withdraw tax and repaid the balance plus interest.  Why am I required to pay additional taxes on my federal tax return when I repaid the loan plus interest in full?


If you repaid the entire loan plus interest, than you are not required to pay normal income tax or early withdraw taxes on the loan. The tax obligation and penalty only apply if the loan is not repaid.

Keep in mind that the 401(k) money is your money, not your employers, so I am not sure why you would be required to both pay back the loan in entirety, and pay all the penalties and taxes for early withdraw. It should be one or the other, but not both.

I suspect that you separating from service triggered a provision in the plan document, sending your loan into default. I would check with the plan administrator or your 401(k) provider to verify that any payments you were making to the paying off your loan, actually went into paying off your loan, and not to new contributions.

It sounds like you were making new contributions to your 401(k) plan with money you thought was going to paying down your loan balance.

Please let me know if I can be of further assistance or if you have additional questions.


Tony DePasquale
ELysien Private Wealth

Accounting, Payroll & Pension Issues

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Tony DePasquale


Pension plan questions, investment management services, plan fiduciary services, profit sharing, defined benefit planning, defined contribution planning, 401(k), 403(b), IRA rollover, plan consulting services, plan structure and plan design consulting.


I have over 10 years experience regarding pension plan management including; investment fiduciary services, plan structure and design, plan administration, employee education, Uniform Prudent Investors Act (UPIA) services, overall plan management consulting, Employee Retirement Income Security Act (ERISA) law and Department of Labor (DOL) law.

Nevada Business Magazine Henderson Press La Voce International Magazine

BA Economic History, University of Nevada Las Vegas Independent Pension Fiduciary ERISA 3(38) Investment Fiduciary ERISA 3(21) Fiduciary

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Las Vegas Chamber of Commerce Excellence In Client Service Award In Business Las Vegas - Who's Who Banking & Financial Services

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Elysien Private Wealth - President Private Wealth Merrill Lynch - Financial Advisor

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