Can I Roll Over My 401(k) Loan to Another Company?

Rolling over a 401k loan to a new employer’s plan is permitted under federal law, but it depends on both plans allowing it, and most don’t. When a direct transfer isn’t available, the unpaid balance is deducted from your old account as a “plan loan offset,” and you have until your tax-filing deadline to replace that cash in an IRA or your new 401k to avoid income tax and a possible 10% penalty.

Whether a Direct Transfer Is Even on the Table

The IRS lets a receiving plan accept an incoming loan from another plan, but it doesn’t require any plan to offer the feature. Whether you can actually move the promissory note depends entirely on the governing documents at both ends.¹

Start with your current plan’s Summary Plan Description. Look for what it says about outstanding loans at separation. Many plans require full repayment within 60 to 90 days of your last day of work. If the document doesn’t explicitly permit transferring the loan itself to another plan, the balance will be offset against your account instead.

Then call HR or benefits at the new employer and ask specifically about “incoming participant loan rollovers.” That phrase describes the plan’s ability to accept a promissory note as an asset rather than just cash or securities. Most recordkeepers won’t do it, because it means manually tracking a repayment schedule they didn’t create. If the answer is no, a direct transfer is off the table, and the rest of this article is what you need.

What Actually Happens When You Leave With a Loan Balance

If you can’t transfer or repay the loan, the plan administrator performs a plan loan offset. Your vested balance is reduced by the unpaid loan amount, and that reduction is reported as a distribution. An account holding $50,000 with a $10,000 loan balance produces $40,000 in distributable assets and a $10,000 offset treated as though you took it out in cash.¹

An offset is different from a “deemed distribution,” which is what happens when someone defaults on loan payments while still employed. A deemed distribution is reported with Code L on Form 1099-R and generally cannot be rolled over. An offset is treated as an actual distribution of the loan note, which makes it eligible for rollover. That distinction is what gives you a way out of the tax bill.¹

Reading Your Form 1099-R

The offset shows up on the Form 1099-R the plan administrator issues at year end. Check box 7 for the distribution code. Code M identifies a “qualified plan loan offset” (QPLO), meaning the offset happened because you separated from service or the plan terminated. Code M often appears alongside another code like 1 (early distribution) or 7 (normal distribution) that reflects your age.²

Code L instead signals a deemed distribution from a default while you were still employed. The code drives how much time you have to fix the situation, so read yours carefully.

How Long You Have to Replace the Money

The Tax Cuts and Jobs Act created a longer rollover window specifically for QPLOs. If the offset qualifies as a QPLO because it was triggered by your separation from employment or the plan’s termination, you have until the due date of your federal income tax return for the year the offset occurred, including extensions. With an extension, that stretches to October 15 of the following year.³

Not every offset gets that window. If the offset happened for some other reason, such as a default unrelated to your departure, the standard 60-day rollover rule applies instead.⁴

If you receive both a QPLO amount and a cash distribution of your remaining balance, each has its own clock. The cash portion must be rolled over within 60 days; the QPLO portion gets the longer window. Missing either deadline turns that portion into taxable income for the year.¹

No 20% Withholding on the Offset

A normal 401k distribution that isn’t sent as a direct rollover comes with a mandatory 20% federal withholding.⁵ Plan loan offsets work differently. No cash actually leaves the plan for you to receive, so there’s nothing to withhold from. If the only piece of your distribution that isn’t directly rolled over is the offset itself, the administrator isn’t required to withhold anything.¹

That helps and hurts. You keep every dollar of your remaining balance, but you’re fully responsible for finding the replacement cash yourself. Nothing is prepaid toward the tax bill if you don’t complete the rollover.

Completing the Transfer or the Rollover

If Both Plans Accept the Loan

Give the new administrator a copy of your original loan agreement, the current amortization schedule, and a statement showing the remaining principal. The old administrator assigns the promissory note to the new plan, and you resume payments through payroll at the new employer. Nothing comes out of your pocket, and the loan continues as before.

The original five-year repayment limit still applies. Federal rules require most 401k loans to be paid off within five years of when they were first taken, with an exception for loans used to buy a primary residence.⁶ A transfer does not reset that clock. Borrow three years ago and the new plan still has to collect the balance within the remaining two years. The tighter the window, the higher your payroll deductions, and some plans will decline the transfer if the math doesn’t work.

If You’re Doing a Cash Rollover After an Offset

Deposit cash equal to the offset amount shown on your Form 1099-R into an IRA or your new employer’s 401k before the applicable rollover deadline. On your federal return, report the total distribution on Form 1040 but exclude the rolled-over portion from taxable income. The IRS suggests writing “Rollover” next to the relevant line.⁵

Keep the deposit receipt together with the final 1099-R. Those two documents prove the offset was handled correctly if the IRS asks.

Partial Rollovers

You don’t have to replace the whole amount. If the offset was $8,000 and you can only put $5,000 back before the deadline, roll over what you have. Income tax and any early-withdrawal penalty apply only to the $3,000 you didn’t replace.⁶

What It Costs to Miss the Deadline

Any offset amount you don’t roll over in time becomes taxable income for the year it happened. It’s added to your other earnings and taxed at your ordinary rate, which for 2026 ranges from 10% to 37% depending on total taxable income.⁷

If you’re under 59½, an additional 10% early withdrawal penalty usually applies on top of the income tax.⁸ For a $10,000 offset that a 40-year-old in the 22% bracket fails to replace, the combined hit is roughly $3,200: $2,200 in income tax plus a $1,000 penalty. That money is permanently out of your retirement savings.

Because offsets aren’t subject to 20% withholding, none of that is prepaid. The full amount comes due when you file.

The Rule of 55 Exception

A few exceptions can wipe out the 10% penalty even if you don’t roll the offset over. The one most relevant to job changers is the Rule of 55: if you separate from your employer during or after the calendar year you turn 55, the 10% additional tax does not apply to distributions from that employer’s qualified plan. For public safety employees of state or local governments, the age threshold is 50.⁸

The Rule of 55 only removes the penalty; regular income tax still applies. And it applies only to qualified employer plans. Roll the offset into an IRA and then take a distribution from that IRA before 59½, and the Rule of 55 no longer protects you.⁸

1
Internal Revenue Service. Plan Loan Offsets
2
Internal Revenue Service. Instructions for Forms 1099-R and 5498
3
eCFR. 26 CFR 1.402(c)-2 – Eligible Rollover Distributions
4
Federal Register. Rollover Rules for Qualified Plan Loan Offset Amounts
5
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
6
Internal Revenue Service. Retirement Topics – Loans
7
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
8
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions