Q. On June 26, I took out a $22,000 loan against my 401(k) plan for major home improvements. That equaled up to $376 per month taken out of my paycheck to repay this loan. Then, Aug. 1, my hours were temporarily reduced until the end of 2012 to 30 hours per week, which amounts to an additional $620 deducted from my pay monthly. This puts a serious hardship on my ability to pay my monthly obligations. Is there a way to legally stop payments to my 401(k) repayment, seeing as I had no idea my hours would be reduced, whereby affecting my ability to pay my monthly obligations, including my mortgage?
A. You may be able to re-amortize the loan to extend the term and decrease the payments. If you default on the loan, the unpaid balance due will be declared a taxable distribution from your account. While this may not be attractive, it’s not the end of the world.