Late payment on a participant loan
What if I am late with a repayment to my Solo 401k participant loan? Are there penalties for late payment on a participant loan?
Your Solo 401k allows for a cure period, which allows you to make a missed payment up until the last day of the calendar quarter after the calendar quarter in which the original payment was due.
If you are able to make the repayments before the cure period
- If the owed principal and accrued interest as of the cure date is made by the end of the cure period, then the loan is made current
- There is no late payment penalty provided the loan was “cured” in this way
If you are not able to make the repayments before the cure period
- If the loan is not made current by the end of the cure period, the outstanding loan amount becomes a deemed distribution
- If you are younger than 59 ½, this is considered a premature 401k distribution on which you will owe income tax plus a 10% penalty
- You are still under obligation to repay the participant loan, even after missing repayment(s)
- You must report the deemed distribution to the IRS by filing Form 1099-R
Form 1099-R Instructions