What happens if I default on a 401k loan? If you default on a 401k loan you will be subject to a variety of fees, penalties and taxes. Your loan will now be considered an early withdrawal and you will be taxed accordingly. There are also fines and penalties associated with early withdrawal that may be placed upon you from the investment firm or your employer.
Can the investment firm sue me for default?
The investment firm can not sue you for defaulting on a loan to yourself. When you take a loan out against your 401k savings you are in reality borrowing from your self and paying yourself back with interest. If you default on this personal loan you will be penalized for early withdrawal of retirement savings.
What happens if I default on my 401k loan? Will I lose everything?
If you default on your 401k loan you will not lose your entire retirement account. You will no longer have the amount that you borrowed against and you will pay fines for early withdrawal, but the rest of your money will continue to be invested. Your investment value will be lower because you no longer have that money in your account generating an income.
Will I still be employed if I default?
While there is no cause for termination for defaulting on a loan, some employers may have strict policies regarding defaulting on a 401k loan. Of course their may be some penalties your employer may enforce. This will all depend on the plan and the investment firm that your company is offering the investment account through.