I changed jobs about 18 months ago and had a 401k with my previous employer. Problem: I had a 10,000 dollar loan when I left. Unfortunately I did not have then (and do not now) have the 10,000 dollars to repay the loan. The employer and Fidelity told me that the employer would foreclose on the loan and the $10,000 would be repaid with my balance (about $80,000) and an early withdrawl penality would be imposed plus taxes. All of this I understand.The strange part is that 18 months later the employer has not yet acted on the loan. I would like to rollover the balance to a traditional IRA of which I would have control and possibly improve my return (my current portfolio is in an index fund; Spartan US equity). I have obviously been pleased that the employer has not foreclosed on the loan and I have avoided the penalty. Question; how long do I suffer from high 401k management fees, average returns and no control to the long-term detriment of my investment? Should I roll it over and take the penalties hit now or continue to wait and see if I can slide another tax year (I assume that at some point they catch up to me and I will have to pay anyway)MCF19067
Repay the loan, if you can.You may not have to repay it as long as the money remains in your former employer's 401k.If you can't repay the loan, but still want to roll it for whatever reason, you will pay a penalty of 10% on the $10,000, plus the $10,000 will be treated as ordinary income. That's a pretty big hit, so don't take it unless you are really sure that you will make more in the long run.Good luck!
The plan has a technical default date for repaying the loan. At that time they're going to issue you a 1099R whether you've rolled your balance somewhere else or not...Check with Fidelity. See if they've got a 1999 1099R in the works for you. If not, put a stamp on an envelope and start making your payments. If so, find out if you catch up on your payments, if they can get the 1099R cancelled. Notice I said PAYMENTS vs. PAYOFF. If you don't roll your balance, you don't have to payoff the loan. You might want to see if Fidelity charges extra for loan payments delivered manually rather than payroll deduction. You're going "out-of-the-box" and that usually causes additional fees if they're willing to do it at all
Could you borrow money from another source to repay the loan? At least then you wouldn't have to pay the penalty although of course you'd have to pay the principal and interest on the new loan. Are you in a credit union? Do you have home equity? Good luck!
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