News and Commentary

401(k) Borrowers Now Have More Time to Repay Plan Loans when They Leave their Jobs by Sean Deviney, CFP

Retirement savers who leave their jobs with outstanding loans from their employer-sponsored 401(k) plans now have up to 21 months to pay back unpaid balances, thanks to the new tax laws. This extended repayment period also provides cost-cutting relief to employers by reducing retirement plan leakage.

Under the Tax Cuts and Jobs Act, workers who borrow money from their qualified retirement plans after Jan. 1, 2018, and who subsequently end employment with the businesses that sponsors those plans, will have until their next tax return filing deadline (including extensions) to pay back the loan free of taxes and penalties. Previously, 401(k) plan participants who left their jobs with outstanding loans had 60 days to pay off the balance and accrued interest to avoid income taxes and possible-early withdrawal penalties on the unpaid balance.

For qualified plans that allow loans, workers may borrow the lesser of 50 percent of their account values or $50,000.To avoid taxes and penalties, employed workers must repay those loans within five years via automatic payroll deductions. In contrast, employees who take hardship distributions from their retirement plans must demonstrate an immediate and heavy financial need. They should be prepared to pay taxes and penalties on the amount they withdraw and recognize that they will not be able to make additional contributions to the plan for the next six months.

With the introduction of this extended loan repayment policy, employers should consider updating their plan documents and communicating the change with their workforce.

About the Author: Sean Deviney is a CFP®* professional and retirement plan advisor with Provenance Wealth Advisors, an independent financial services firm that often works with Berkowitz Pollack Brant Advisors and Accountants.  For more information, call (954) 712-8888 or email

Provenance Wealth Advisors, 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.

Sean Deviney is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.  Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors and Accountants.  PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of PWA and not necessarily those of Raymond James. You should discuss any tax or legal matters with the appropriate professional. The information contained in this report has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete.

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Investments mentioned may not be suitable for all investors. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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