Defaulted 401k Loan - tax hit

Forum|Forum|11 months ago
April 9, 2025
1 reply
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Defaulted on 401k loan during Hurricane Milton/Helen here in Florida. Did not realize it happened until it was in default. Had the money to cure the the situation but Fidelity deemed it distribution. Not blaming the bank. My job has switched companies that handle our 401k but has not rolled over the 401k and I have received 1099-R with the distribution.

Any advice to lessen the tax burden for the distribution.

MinhT1

Unfortunately, there is no way to lessen your tax burden.

If you are not able to pay now, you can apply for an IRS payment plan HERE.

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dmertz

Employee

Also, a deemed distribution (code L included in box 7 of the Form 1099-R) simply makes the outstanding loan balance taxable to you. It does not satisfy the loan. Subsequent loan repayments become after-tax basis in your 401(k).