What happens to my 401(k) loan if I quit or lose my job?

When you leave, most plans accelerate the loan and treat the outstanding balance as due. Thanks to a rule from the 2017 tax law, you now have until your tax-filing deadline, including extensions, for the year you separate to repay the balance or roll an equivalent amount into an IRA or new plan (a qualified plan loan offset).

If you cannot cover it in time, the unpaid balance becomes a deemed distribution: it is taxed as ordinary income, and if you are under 59 1/2 you owe an additional 10% penalty. This is a major hidden risk of 401(k) loans, since job loss and loan default often strike together. Before borrowing, ask how repayment works if your employment ends.