Knaub & Company, PC

Certified Public Accountants

78 Meadow Village Drive, Suite E

PO Box 161030, Big Sky, MT 59716


Phone:  406-995-6040

Fax:      406-993-2772



June 2020

June 2020 Client Profile

Article Image

At the beginning of the year, Phil, age 40, took out a 401(k) loan to use as a down payment on his new home. When the coronavirus hit, Phil was laid off from his job at a travel tech firm as flights all but came to a standstill.

Along with the bad news of losing his job, Phil also fouund out that his outstanding 401(k) loan balance of $20,000 will be due in full by April 15, 2021. What options are available to Phil?

To date, there have been no relief provisions provided for this situation in any of the COVID-19-related federal stimulus packages. As a result, the old rules apply. Phil must either repay the full loan balance by the deadline or treat the amount as a distribution. In the first scenario, he must save over $1,600 each month for the next 12 months in order to pay back the loan by April 2021.

In the second scenario, Phil has to pay a 10% withdrawal penalty since he’s under 55 years old and must pay income tax. Depending on how quickly he returns to work, the distribution may even bump him up into a higher tax bracket.

Client Profile is based on a hypothetical situation. The solutions we discuss may or may not be appropriate for you.


Enter your Name and Email address to get
the newsletter delivered to your inbox every month.


Enter your Name, Email Address and a short message. We'll respond to you as soon as possible.

The information and opinions contained in this web site are obtained from sources believed to be reliable, but their accuracy cannot be guaranteed. The publishers assume no responsibility for errors and omissions or for any damages resulting from the use of the published information. This web site is published with the understanding that it does not render legal, accounting, financial, or other professional advice. Whole or partial reproduction of this web site is forbidden without the written permission of the publisher.