Question: Justine has a 401(k) plan loan with her employer and recently was diagnosed with COVID-19. She has never missed a required payment before and is concerned that she will not be able to afford to make her weekly payments due to being off work. Can she request a forbearance on her required payment due to being impacted by COVID-19?
Answer: Justine will not only have 14 days to suspend the loan repayment, the plan loan will receive an automatic repayment delay of one year. This treatment is only applicable if the employee, spouse or dependent has been impacted or affected by COVID-19. Had she had the plan loan and not contracted COVID-19, she would still be liable for the repayment.
Delayed repayment of plan loans: Affected participants who have a payment on a plan loan due between the date of enactment and Dec. 31, 2020 (the “grace period”), will be able to receive a one-year extension. The five-year mandatory repayment period that applies to most plan loans is suspended for the duration of the grace period. The CARES Act provides that the subsequent loan payments will be “appropriately adjusted” to reflect a one-year extension and any interest which accrues during the one-year extension.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.