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Is there a statue of limitation after defaulting on a 401k loan and what to take out another loan?

In 1983 I defauled a 401k loan. In 2003 I defualted a 401k loan totaling about 25,000. I have about 400k in the plan and I am not getting a clear answer on weather or not i can withdraw money. I would like to know if there is anwer federal law that states if I can withdraw from my account. I am 55 y/o.

Feb 26, 2012 by Edwin from Fresh Meadows, NY in  |  Flag
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Mike Fleiner Level 13

Edwin, when you default on a 401(k) loan from a 401(k) plan the money you still owe becomes a distribution event. In other words, you normally have a period of time after you have left the company to pay back the loan (usually 60 days). Your question states that you indeed defaulted and did not pay back the loan. You should have received a 1099 in 2003 for the amount owed on the loan and would have paid taxes and the 10% penalty for taking an early distribution. You will want to contact the employer that your $400K account is with do determine your current distribution options.

Comment   |  Flag   |  Feb 20, 2013 from Reno, NV

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If you are no longer employed by the company that sponsors the plan, then you can make withdrawals without incurring a 10% early withdrawal penalty. The relevant section from the IRS website can be found here:


If you are still employed with the company, your withdrawal would be subject to a 10% penalty unless you can qualify for one of the other penalty-free options permitted by the IRS and the plan. Your earlier loan "defaults" should not affect your ability to make withdrawals, because a 401k loan default is not like a traditional loan default. An unpaid 401k loan is treated as an early withdrawal from the plan, creating a tax liability. Given that your defaults were 9 and 29 years ago, I expect that such liability was settled long ago. Check with your tax advisor to be sure.

Remember that when you take a distribution from your 401k plan account, you will be subject to ordinary income tax on the withdrawals. If you do not need the money now but just want to get it out of the 401k, I would recommend that you consider rolling over the balance into an individual retirement account. While you would lose the ability to withdraw the money without penalty before you are 59 1/2, except in limited circumstances, you would have more flexibility to invest the account in line with your needs and goals. Good luck and do not hesitate to reply back with further questions or comments.

Comment   |  Flag   |  Feb 26, 2012 from San Francisco, CA

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Jason Hull Level 20

Not that the government is particularly good at issuing clear language guidance, but here's a guide from the IRS which is slightly more plain English: http://www.irs.gov/Retirement-Plans/Plan-Sponsor/401(k)-Resource-Guide---Plan-Sponsors---General-Distribution-Rules

Comment   |  Flag   |  Feb 20, 2013 from Fort Worth, TX

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