The miscommunication happened between my employer and JP Morgan, all 401K loan payment done by them, I had no control. That is why my employer want to settle with me. I did paid all tax and penalty according to 1099R already. So I don't have any obligation to the loan anymore. JP Morgan should not keep my payment since 2012. For example if you got layoff or fired, you suppose to pay the 401K loan back in 30 days, but if you did not pay, they will give you a 1099R and treat the loan balance as early withdraw, you pay tax and penalty to IRS and you never need to pay the loan back. 401K loan is a borrow from yourself. Is this make sense?
Read more : http://www.ehow.com/info_8528640_defaulted-loan-401k.html
If you default on a 401k loan, the Internal Revenue Service considers it a withdrawal, which incurs a 10 percent tax penalty. Most people who default on the loan end up paying about 40 percent in taxes to the government. On the plus side, the employer does not report the default to the credit reporting bureaus.
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