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401k and Loan and termination question


Fquinones81

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Hello,

This is a complicated question, and I am hoping for some help. I was recently laid off from a company with an outstanding loan balance against my 401k. The 401k, was originally 2 different 401ks that my company merged together. Now, before the merger is when I took the loan. The loan amount was around 16,000 and all from account A. Account B had no loan against it and was worth about 11k at the time of the 401k merge to account C. 

Now, when I got account C it started off by saying I had a vested amount of 11k and an outstanding loan of 16k. Over the next year as I paid back the loan and the investments the loan balance the vested balance shifted. Loan balance got smaller and between contributions and earnings my vested balance increased. Now the company is trying to tell me that my vested balance, which it has listed as 18k needs to be offset by the 12k I owe, but that doesn't feel right as all the loan repayments, earnings, and other money that was not involved with the original loan had accumulated to the 18k, and somewhere on the site I saw a spot that said total account balance was 30k. Am I confused? Or are they trying to yank me?

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They're not going to take the $12k out of your $18k, dont worry about that. An offset implies a taxable event. So you will not receive a new check but you will get a 1099 to report $12k as retirement income, subject to taxes and applicable penalties. 

IMHO They're not trying to yank you.

R. Alexander

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7 hours ago, Fquinones81 said:

Now the company is trying to tell me that my vested balance, which it has listed as 18k needs to be offset by the 12k I owe, but that doesn't feel right as all the loan repayments, earnings, and other money that was not involved with the original loan had accumulated to the 18k, and somewhere on the site I saw a spot that said total account balance was 30k. Am I confused? Or are they trying to yank me?

Someone is confused.  You should get 18K, and the 12K is indeed "offset" but it is a term we use to indicate the loan is being distributed as a taxable event - your entire account, including the loan, is 30K, and the 12K loan is offset from that total.  You may have mis-heard or you might be talking to an idiot.  Unfortunately that is very possible.

Ed Snyder

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I don't think we have enough information to actually answer the question.  1) Was the loan from your account or a pooled investment from the plan?  2) When you say "vested account balance" does that include - or not include -the amount of the balance on the loan?  The answers above assume that the answers were "loan from your account" and "no" respectively.

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