I was going to ask this on my previous post but it was too long and figured a separate post would be best. I just received a packet from Pay and Benefits in the mail today regarding my vested balance, as well as a loan I requested back in August. They were taking out about 70$ from my paycheck every 2 weeks to pay it off and I was under the impression that I wouldnt be able to leave Target (whether by choice or not) unless I could afford to pay it completely back. So when I was let go, I was immediately worried about whether I would have a huge loan on my back. From my little knowledge on how 401k's work, I think it saying that if I'm unable to pay the full amount back by the end of June, it'll be taken from my vested balance. Does this sound about right? Has anyone else requested a loan from their 401k and could spare some knowledge? It specifically says that "the remaining principal balance will be offset from your vested account balance". But what is the vested balance?? Is that the accumulation of my contributions within my 4 years at Target? Or is that including company contribution? How would I be able to withdraw my balance, if possible? Is it better to wait until retirement age? Sorry for all the questions but I got the letter moments ago and I can't ask my parents because quite honestly they aren't financially responsible and wouldn't know.
The real problem here are the Federal regulations which the Target 401-k must obey. Whether
they throw you over the ship or
you give them the golden finger, the IRS rules require that 401k loans must be repaid to the plan upon termination from employment. Since Congress enacted the Tax Cuts and Jobs Act, the due date for coughing up the money to repay the loan in full has changed. In some cases it's shorter than the old 60-day grace period. If you don't cough up the money to pay off the loan, the entire balance will be yanked out of your 401k account PLUS you will face a very nasty set of penalties courtesy of the IRS (and maybe your own state's tax department). Those penalties include a 10% premature withdrawal penalty PLUS the entire loan amount becoming taxable income for the current tax year, as well as any administrative fees from Target's 401k operator. However, for what it's worth, do not assume that you must close out your entire 401k plan balances even if you face the tax penalties. If you yank the money out without a direct rollover to another employers 401k plan or an Individual Retirement Arrangement (IRA) with a broker or bank, you'll add even more taxes and penalties that will hit you like a ton of bricks after you've already spent the money (their mandatory 25% withholding on most plan withdrawals is NOT enough to cover these costs). Some of these penalties apply even if you have a Roth 401k since the company's donations are in a parallel regular 401k.
Don't hesitate to contact Target's 401k administrator for help with this. Sorry you are going through this.....
And for anyone else reading this, and this is not meant to be a criticism of OP, REAL FRIENDS DON'T LET FRIENDS BORROW AGAINST A 401K. Having the rug pulled out from under you with unplanned job loss is bad enough. Experiencing job + income loss, combined with being expected to repay a 401k loan at the very moment you've lost your job - really stings hard. Combine this agony with the heartburn of a huge tax bill for money you've already spent.
Please, please, please spare yourself the pain.
