If you already are paying on a loan from your 401(k) account and lose your job amid the coronavirus pandemic, that borrowed money could generate a tax bill you weren’t expecting.
Although the latest round of economic rescue legislation provides relief for coronavirus-related withdrawals from 401(k) plans, loans that already have been in repayment are subject to some existing rules that apply when you’re laid off or otherwise part ways with your company. In other words, your loan could morph into a distribution that comes with taxes and an early withdrawal penalty.
“If an individual is laid off, it can speed up the time of repayment,” said Will Hansen, executive director of the Plan Sponsor Council of America.
Although the CARES Act makes some changes to 401(k) withdrawals and loans for individuals financially impacted from the coronavirus — including waiving early withdrawal penalties and giving qualifying individuals three years to replace what they took…