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Each plan sets down what happens if a loan is taken from a 401k and the need to repay.
A loan that is in default is generally treated as a taxable distribution from the plan of the entire outstanding balance of the loan (a “deemed distribution”).
The plan’s terms will generally specify how the plan handles a default. A plan may provide that a loan does not become a “deemed distribution” until the end of the calendar quarter following the quarter in which the repayment was missed.
The plan rules determine this.
If you go into default then they will issue you a 1099R showing the outstanding amount as a distribution and you will pay tax on that amount when you file your return.
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