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You also have the option not to repay the loan, then it will be defaulted, and it will be reported as income. However, if you are retired and your income is decreasing in the following year, you can time the default so that it can be recorded in the following years income and lessen the tax hit. My 401k administrator informed me that it would take about three months from my first missed payment before it was declared defaulted. You should however, contact your own plan administrator before making any decisions
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