Can’t: Freely Leave Your Job If You Have a 401(k) Loan

There’s always the obvious chance that you will leave your job or get fired. But if you have a huge 401(k) loan, you may need to tread lightly. When you leave the company, you normally have to pay back your outstanding 401(k) loan within a short amount of time.

If you don’t have the cash to be able to accomplish that, your loan will be treated as a distribution from the IRS, which could be disastrous for you financially.

Not only will you owe the ordinary income tax on the amount of your loan, but you’ll also have to pay a 10% early distribution penalty if you haven’t yet reached age 59 and a half.