My understanding is that if I am over age 55 and default on a loan
through my 401(k) plan when leaving the company, the 10% penalty is forgiven.
Can you confirm that for me?
If you default on a loan from your 401(k) plan, you are considered to have
received a distribution from your 401(k) plan . Whether or not you will have
to pay the 10 percent additional tax on early distributions from 401(k) plan
depends on a number of factors, including your age.
In order to avoid the 10 percent additional tax on early distributions
from qualified retirement plans, the following all must be true:
- you received the distribution after you left the company; and
- you left the company during or after the calendar year in which you reached
age 55; and
- your departure from the company qualifies as a separation from service.
In addition, you may avoid the 10 percent additional tax if you meet
one of the other exceptions shown in
Publication 560,
Retirement Plans
for Small Business and
Publication 575,
Pension and Annuity
Income.
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