401(k) loans are typically paid through payroll deductions based on your agreed upon amortization schedule. The payment amount should be pulled directly from each paycheck.
While your 401(k) loan is processed and managed with Guideline, sometimes we have to rely on your employer to set up the loan payment deductions within payroll.
As a result, if you received a notification from Guideline that you missed payments, this is typically because the payments were not set up or an error occurred when payroll was run.
What should I do if I missed my loan payments?
If you receive notifications regarding missed loan payments, we recommend reaching out to your company’s internal 401(k) administrator as soon as possible. You’ll want to confirm that they have properly set up your loan payment deductions within their payroll system, so the amounts are appropriately withheld and applied to your loan balance.
Additionally, if there are missing loan payments, you’ll need to make them up by paying the missed amounts within your Guideline dashboard. Check out our step-by-step instructions on how to make 401(k) loan payments outside of payroll.
What happens if I miss too many loan payments?
When you miss a loan payment, you have a certain amount of time to make up the missed payment. This period of time is known as the “cure period.” For loans at Guideline, the cure period is 90 days from the date of the missed payment.
Any new payments received after a missed payment will be applied to the oldest outstanding payment. If you have a missed payment that is not made up by the end of the cure period, your loan will default, and the entire remaining unpaid loan balance will be deemed distributed.
If this occurs, you’ll be required to pay income taxes on any pre-tax balance in the year the deemed distribution takes place. Additionally, if you do not qualify for an exemption, you will be subject to a 10% early withdrawal penalty tax on the full remaining balance.
Learn more about deemed distributions and offsets or check out our 401(k) loan FAQ.
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