How to deal with my job change & 401k loan that I can't fully pay back?

Question

It's been 60 days since I changed my job and I have an outstanding 401(k) loan of $30K(+30k non loan amount). I have only $20K to pay and my 401k plan won't accept the partial amount.

I still didn't get my delinquency notice, so I don't know when and what are the rules to pay back.

If I don't get any notice, can I argue that I still didn't get the notice, or is it my duty to keep on top of it? When I called the call center they said that generally the loan is due in 90 days. She didn't know if I will get a notice with a grace period or not. What does such a notice generally look like; is there a grace period?

Let's say I get a notice saying that my loan is delinquent. Can I roll my whole 401k(I know i cannot rollover my loan) into my IRA, and pay into the IRA the partial amount to reduce my penalty and taxes? (meaning, 30k non-loan rollover, plus 20k )

Answer 1

Not getting a notice doesn't reduce or eliminate your contractual liability, you still have to repay the loan. Generally you have to do it within 90 days after leaving your job, that is the grace period.

If you don't repay the loan, it will be considered distribution, and taxable (including the 10% penalty). You cannot roll over a loan to IRA, you have to repay the loan to your 401k before rolling over. Partial roll over will be considered a distribution (including the taxes and the 10% penalty on the part not rolled over).

Answer 2

I think you could handle it in the following way.

Roll over your current 401k balance to 401k at your new job ($30,000)

Take out a new loan from that 401k for $10,000 - and use the $10k, + $20k you have in the bank to clear your existing 401k loan. (You could also take out $15k, and leave $5k in the bank)

Answer 3

I just withdrew the the amount for the partial loan payment, so now I end up paying only partial penalty for the amount i needed to fulfil the loan.