Federal tax rules allow terminated employees until their tax filing deadline to roll over 401(k) loan offsets, avoiding penalties.
Workers laid off with outstanding 401(k) loans now have until their federal tax return due date—potentially October with an extension—to roll over the offset amount. This replaces the widely assumed 60-day repayment window, reducing immediate tax and penalty risks for affected individuals.
The rule applies specifically to qualified plan loan offsets (QPLOs) triggered by job separation, not missed-payment distributions. Workers must fund the rollover with external savings or severance, as original loan proceeds were likely spent earlier. The IRS treats unrolled offsets as taxable income, with a 10% early withdrawal penalty for those under 59½.
The extended deadline provides relief for older workers, who face higher penalty exposure. For example, a 58-year-old laid off this year could have until October 2025 to address the offset, depending on tax filing extensions.