SmartMoney Blogs

Ask SmartMoney
Your personal finance questions, answered.

If Laid Off, Must I Pay 401(k) Loan Penalties?

Question: I was recently laid off, and I have a loan from my 401(k). Do I have to pay penalties on this since I lost my job through no fault of my own?

– Michael Farmer, Martinsville, Va. 

Answer: Alas, even though you lost your job through a layoff, experts say you’re still on the hook for that loan repayment if you want to avoid defaulting and having to pay ordinary income tax on the remaining loan amount—in addition to incurring early-withdrawal penalties. The good news, says Katie Umile, CEO of registered investment adviser iCapital in Boston, is that your employer or 401(k) provider might work with you, by accepting loan payments directly in lieu of the payroll deduction taken when you were still an employee. Also, you may have a window of 60 to 90 days after your layoff to pay back the loan and interest in full, says Umile, so be sure to check the documentation that came with your loan.


We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (5 of 25)

View all Comments »
    • When I was hired I was told that the company has a matching contribution of .50 cents for each dollar up to the 1st 6% of my contributions. They also said the matching amount is discretionary.

      During the past two years I have deposited into the 401K account enough to get the maximum match and then in March of the following year the company states that they will not be making the match for the previous year contributions.

      Shouldn’t the match be determined at the beginning of the plan year. Is there some type of rule that regulates this by the IRS?

    • Hey would you mind letting me know which hosting company you’re working with? I’ve loaded
      your blog in 3 completely different internet browsers and I must say this blog loads a lot quicker then most.
      Can you suggest a good internet hosting provider at a reasonable price?
      Thank you, I appreciate it!

      my web page :: antique silver jewellery

    • Thanks for your post. I have continually seen that the majority of people are needing to lose weight simply because wish to look slim and attractive. Nevertheless, they do not constantly realize that there are additional benefits to losing weight in addition. Doctors declare that overweight people suffer from a variety of diseases that can be directly attributed to their own excess weight. .

    • It’s really a cool and useful piece of information. I am happy that you just shared this helpful information with us. Please stay us up to date like this. Thanks for sharing.

      Have a look at my site; clip on earrings for women

About Ask SmartMoney

  • Ask SmartMoney has a single, simple mission: Answer your questions. Answers are written by the staff of SmartMoney.com and SmartMoney magazine, with the help of outside experts. Topics cover investing, spending, retirement planning, saving for college, insurance, taxes and more. Submit your question in the form below, or email ask@smartmoney.com.