A loan does indeed become due and payable in full upon termination of employment. Continued payments and/or partial lump sum installments are not permitted. If the outstanding loan is not paid in full (one lump sum installment) by the end of the "cure period”, the loan enters into default. The cure period is the repayment period which ends on the last day of the calendar quarter following the calendar quarter during which the last scheduled installment payment was due and not paid. In default, the outstanding balance of a loan is re-characterized as taxable income for the tax year in which the default occurred, and a Form 1099-R is issued (in January of the following year) indicating the corresponding tax liability. If the Participant elects to distribute or rollover their account balance (which contains a loan), the outstanding balance of the loan is offset (reducing their account balance) and is treated as taxable income for that tax year.
When does a loan become payable upon termination? Print
Modified on: Fri, 25 Nov, 2022 at 10:36 AM
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