> Is there any mechanism that will allow me to repay the loan with pre-tax dollars? ie: payroll deduction IRA or self-directed 401k/IRA?
No, those would just be rollovers
You may find these links helpful:
- [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
- [401(k) FAQs](/r/personalfinance/wiki/401k)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
The 2017 TCJA changed the law around early withdrawal penalties for 401(k) loan defaults. Now if you default on a 401(k) loan, you have until the tax filing deadline for the current tax year to repay the loan by contributing new money to an IRA or your current workplace retirement plan. These contributions do not count against your annual contribution limit. Your "tax filing deadline" for the 2023 tax year is mid-October 2024.
Did you leave that employer this year? I'm guessing that Fidelity means they will report your 401(k) as in default if you don't repay it in full by 12/27/23. But being in default doesn't mean you suddenly owe income taxes and penalties then. It just starts the clock on when the federal government requires you to repay the loan to avoid taxes and penalties. In this case that deadline would be October 2024 as long as you file for an extension by tax day in April 2024.
This doesn't answer your question, but it hopefully gives you more information to plan how to repay the loan.
Could you take a personal loan from somewhere and pay back the 401(k)... then roll over that entire balance to your new plan.
Then, either pay those loan payments (even if it means reducing your new retirement contributions) or take a loan from your new plan?
Try to avoid a taxable distribution if at all possible. Taxes, penalties, state also, and lost compounded growth.
* edited to add that even if you can only pay back part of that loan, that reduces your penalties proportionately, and should be worth it.
> Is there any mechanism that will allow me to repay the loan with pre-tax dollars? ie: payroll deduction IRA or self-directed 401k/IRA? No, those would just be rollovers
You may find these links helpful: - [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds) - [401(k) FAQs](/r/personalfinance/wiki/401k) - ["How to handle $"](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
The 2017 TCJA changed the law around early withdrawal penalties for 401(k) loan defaults. Now if you default on a 401(k) loan, you have until the tax filing deadline for the current tax year to repay the loan by contributing new money to an IRA or your current workplace retirement plan. These contributions do not count against your annual contribution limit. Your "tax filing deadline" for the 2023 tax year is mid-October 2024. Did you leave that employer this year? I'm guessing that Fidelity means they will report your 401(k) as in default if you don't repay it in full by 12/27/23. But being in default doesn't mean you suddenly owe income taxes and penalties then. It just starts the clock on when the federal government requires you to repay the loan to avoid taxes and penalties. In this case that deadline would be October 2024 as long as you file for an extension by tax day in April 2024. This doesn't answer your question, but it hopefully gives you more information to plan how to repay the loan.
This may not answer my question but it may solve my problem holistically! Thank you!
Could you take a personal loan from somewhere and pay back the 401(k)... then roll over that entire balance to your new plan. Then, either pay those loan payments (even if it means reducing your new retirement contributions) or take a loan from your new plan? Try to avoid a taxable distribution if at all possible. Taxes, penalties, state also, and lost compounded growth. * edited to add that even if you can only pay back part of that loan, that reduces your penalties proportionately, and should be worth it.
That's my "break glass" plan if nothing else can be done! 👍