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Loans & Other Retirement
Account Transactions

This is archived information that pertains only to the 2000 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

I left a company where I had an outstanding loan through my 401(k) and did not pay the loan back. How do I report this on my Form 1040?

You should receive a Form 1099-R reporting the outstanding loan as a distribution from the 401(k) plan. This income is reported as ordinary income on line 16b of Form 1040. If you are under the age of 59 1/2, you are also subject to a 10 percent additional tax on early distributions from qualified retirement plans. This is reported on line 54 of Form 1040. If you are subject to the 10 percent additional tax on early distributions from qualified retirement plans and the Form 1099-R has code 1 in Box 7, write "no" on the dotted line next to line 54. If you are subject to the 10 percent additional tax on early distributions from qualified retirement plans and the Form 1099-R does not have code 1 in Box 7, you need to also file Form 5329, Additional Taxes Attributable to IRAs, Other Qualified Retirement Plans, Annuities, Modified Endowment Contracts and MSAs.

References:

  • Publication 575, Pension and Annuity Income
  • Form 5329, Additional Taxes Attributable to IRAs, Other Qualified Retirement Plans, Annuities, Modified Endowment Contracts and MSAs
  • Instructions for Form 5329, Additional Taxes Attributable to IRAs, Other Qualified Retirement Plans, Annuities, Modified Endowment Contracts and MSAs
  • Tax Topic 558, Tax on early distributions from retirement plans
  • Tax Topic 412, Lump-sum distributions


My understanding is that if I am over age 55 and default on a loan through my 401(k) 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), you are considered to have received a distribution from your 401(k). Whether or not you will have to pay the 10 percent additional tax on early distributions from qualified retirement plans 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
  • you left the company during or after the calendar year in which you reached age 55
  • the plan you participated in was a 401(k) and not a SIMPLE 401(k)

or, you must meet one of the other exceptions shown in Publication 560, Retirement Plans for Small Business and Publication 575, Pension and Annuity Income.

References:

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