What happens to the loan balance in a 401(k) plan when the participant dies and the account is to be split between two non-spouse beneficiaries?
If the participant’s estate repays the loan, then the full account is split between the two beneficiaries (presumably 50-50, although your question does not say). If the estate does not repay the loan, then what happens next depends on whether the account balance was used as security for the loan. If it was, as is the case with most qualified plans, then the trustee must offset the account balance by the principal and accrued interest after the estate has passed its grace period. At that point, only the net account (net of the unpaid loan balance) is available to split between the two beneficiaries.
Related Questions
- What happens to the loan balance in a 401(k) plan when the participant dies and the account is to be split between two non-spouse beneficiaries?
- What happens if a participant takes a loan from the Roth account and then defaults, requiring deemed distribution of the outstanding balance?
- What happens to the balance in the account(s) at the end of the plan year?
