What is the difference between deemed default and default of a 401k loan?
In 401(k) Plan if you take a loan and then as per the schedule you are suppose to pay the loan back but if in case participant fails to repay the loan for a specific period of time decided by employer then his/her loan will be treated as defaulted. It depends on the employer to send notification to participants about their loan status. Once the loan has become defaulted in one calender quarter and it is not getting paid untill next/following calender quarter then the defaulted loan will be treated as deemed(considered) as payment taken out of 401(k)plan subject to all taxes and also early panelty taxes if particpant age is less than 59.5.
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