401k loans + repayment

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lilyofthevalley

Joined
Feb 28, 2020
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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.
 
Google “vested balance in 401k plan”. There’s an article there from thebalance.com that answers some of your questions. Good luck!
 
After 4 years, your vested balance at this point would be the full amount in your account. If you stop working at Target, the full amount of the loan becomes due. If you cannot/do not pay it back by the due date, it will be paid back from your account and will be charged interest and penalties.
 
Sounds about right. I borrowed over 10k for a home loan 2 years ago. Now I'm sitting thru a few years slave working or else I have to pay everything up front. Mfkers won't even roll it over to a new employer. The Next best thing is credit loan that offers 12 month interest free to pay that up, then you can leave. How Much did you borrow?
 
lilyofthevalley said:
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.
Click to expand...
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.
 
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Whats worst is if you don't pay back the entire loan amount by the end of the quarter you were terminated target keeps the FULL amount of the 401k account balance. IE: outstanding loan 10k. leave company. 401k balance 30k. Target legally keeps the full account balance as collateral! I'm still employed but it is in the fine print that you acknowledge when you take out a 401k loan. Should always be a last resort option.
 
POGTL said:
Whats worst is if you don't pay back the entire loan amount by the end of the quarter you were terminated target keeps the FULL amount of the 401k account balance. IE: outstanding loan 10k. leave company. 401k balance 30k. Target legally keeps the full account balance as collateral! I'm still employed but it is in the fine print that you acknowledge when you take out a 401k loan. Should always be a last resort option.
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Don't know what you read, but that's just not true. I previously took out a loan and I left target last November before I paid it back in full. I still owed about $6k. My remaining balance was over $40k and I ended up taking a payout for the remainder of my balance, after taking out taxes and the early withdrawal fee of course. The only immediate downside I've seen is that the payout counts towards my yearly income, which pushed me to the next tax bracket, and the portion that I didn't pay back yet was heavily taxed on my federal taxes, which significantly reduced my tax return.

And yes, I know taking a payout wasn't the wisest decision, but it allowed me to become debt free and start a significant savings account. So it worked for me, but may not be for everyone.
 
Smart move taking your money out on time. I'm down to 10k since this covid bullshit. Took over a year to get that 10k, now down in a month.
 
I know this is an old thread but my boyfriend took out a loan with his 401k and is basically killing himself to pay it back. I have no idea how much he has paid back(he has no idea how to check it) but he just started a second job and thought maybe he could either transfer that loan to his new job or go on demand at target and still pay for it. Does anyone know if this is possible for either scenario.
 
Kaybear15 said:
I know this is an old thread but my boyfriend took out a loan with his 401k and is basically killing himself to pay it back. I have no idea how much he has paid back(he has no idea how to check it) but he just started a second job and thought maybe he could either transfer that loan to his new job or go on demand at target and still pay for it. Does anyone know if this is possible for either
Click to expand...
He can find out on targetpayandbenefits.com for the amt owed.
 
Whats worst is if you don't pay back the entire loan amount by the end of the quarter you were terminated target keeps the FULL amount of the 401k account balance. IE: outstanding loan 10k. leave company. 401k balance 30k. Target legally keeps the full account balance as collateral! I'm still employed but it is in the fine print that you acknowledge when you take out a 401k loan. Should always be a last resort option..
Thanks pogtl
 
Actually if you don’t pay it back you will be charged early withdrawals taxes, the money in your 401k is your money….they loaned you “your” money but no taxes on it….if you can’t pay it…it will be considered income and will apply to your annual income
 
I’m due to retire in year of our lord 2053. Fidelity’s little investment calculator is projecting around 2,400 bottlecaps monthly, that is if Warlord Gorefang remembers to disburse it
 
401K loans are not subject to penalties unless you default. If you fail to repay or are fired, you have to pay the taxes. You are not allowed to borrow the entire amount.
 
Mods, this should be a sticky topic. The same questions are asked over and over again, having it as a sticky will be more helpful for those with the same common questions.

Side note: Friends Don't Let Friends Borrow Against Their 401k - The Laws of Unintended Consequences
 

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