401K loan offset help!

Hello everyone,

I am so confused and could use some assistance.  I had a 401K balance of $58K but have an outstanding loan of 10K so the balance that shows up is now 48K.  I've been paying it back and all that. I took it out to pay high interest credit cards.  Anyway I have just resigned.  Now I know I will have it taxed as income and all that plus a 10% penalty.  My question is regarding the balance of the 401K.  It is 48K correct?  They won't reduce it by another 10K to "repay" the loan will they?  It seems like a silly question but I'm not good at this.

Thank you.  

If you are describing it correctly they won't take another $10k to pay the loan.  You will get $48k in cash plus $10k in loan forgiveness as your distribution. 

I understand why some recordkeepers show the balance as $48k as that is how much you would get paid in cash if you leave your job.  However, strictly speaking it isn't the correct balance.  Your balance is $58k with $10k as a loan and $48k as the other investments. 

As an aside if you by chance have $10k (most people don't) or can borrow it at a reasonable rate you can avoid the taxes and 10% excise tax by putting the $48k you get plus $10k from an outside source into an IRA.  It might even be possible to repay the loan quickly and get $58k from the plan as a direct rollover thus having no taxes withheld even. 

If getting that kind of cash is possible you might want to get some tax advice before you take the distribution.  

To add to this, beginning in 2018 you have an extended period of time to put this amount into an IRA or another qualified plan.  It used to be 60 days and has now been extended to the due date of your tax return (plus extensions)

Thank you!

You’re welcome