Ask the Experts: When a Layoff Catches You With a 401(k) Loan

Q. I was just told I’m going to be laid off. What happens to the money I borrowed from my 401(k)? I haven’t paid it back in full yet.

A. When your job is terminated, any money that was borrowed from your 401(k) account becomes due, usually within 60 days. If you cannot afford to pay it back, the amount you owe will be treated as an early withdrawal if you’re younger than 59½. It will be taxable and you’ll owe a 10 percent penalty—except in certain circumstances. For example, if you’re at least 55 years old or disabled, the penalty won’t apply.

Carole Fleck is a senior editor at AARP Bulletin.