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

Rolling over a 401(k) loan to a new employer’s plan is legal under federal rules, but it almost never happens in practice because both the old plan and the new plan have to be set up to allow it, and most are not. What usually happens instead is a plan loan offset: your old plan cancels the loan by subtracting the unpaid balance from your account, and you have until your tax-filing deadline to replace that amount with your own cash if you want to avoid income tax and a possible penalty.

When a Direct Loan Transfer Is Even Possible

The IRS permits a receiving plan to accept an incoming loan from another plan, but it does not require any plan to offer that feature. Whether the transfer can happen depends entirely on the governing documents of both plans.

Start with the Summary Plan Description from your current employer. Look for language about outstanding loans at separation. Many plans demand full repayment within 60 to 90 days of your last day, and if the plan doesn’t specifically permit transferring the promissory note itself, the loan will be offset against your balance instead.

Then call the benefits or HR contact at your new employer and ask about “incoming participant loan rollovers.” That is the exact phrase for a plan’s ability to accept a promissory note as an asset rather than just cash or securities. Most recordkeepers decline, because taking on the note means manually tracking a repayment schedule they didn’t originate. If the answer is no, a direct transfer is not available and you’re in offset territory.

If both sides agree, the mechanics are straightforward. You give the new administrator your original loan agreement, the amortization schedule, and a statement of remaining principal. The old administrator assigns the note to the new plan, and payroll deductions at your new job pick up where the old ones stopped.

One constraint carries over: the original five-year repayment clock does not reset. Federal rules require most 401(k) loans to be repaid within five years of when they were first taken out, with an exception only for loans used to buy a primary residence.¹ If you borrowed three years ago, the new plan still has to collect the balance within two. A tight remaining window means higher payroll deductions, and some new plans will refuse the transfer if the numbers don’t work.

What Happens If the New Plan Won’t Take the Loan

When you separate from your employer and can’t transfer or repay the balance, the plan administrator performs a plan loan offset. Your vested balance is reduced by the unpaid loan amount, and the offset is reported as a distribution. If your account held $50,000 and you owed $10,000, you’d walk away with $40,000 in distributable assets, and the $10,000 loan balance would be treated as though you’d taken it in cash.²

A plan loan offset is not the same thing as a “deemed distribution,” which is what happens when you default on payments while still employed. A deemed distribution generally cannot be rolled over. An offset can, because it’s treated as an actual distribution of the loan note. That difference is what gives you a chance to fix things.²

No money is actually withheld when the offset happens. With a normal cash distribution, the plan withholds 20% for federal income tax before writing you a check. With an offset, no cash changes hands, so there is nothing to withhold from.² That’s a mixed blessing. You keep more up front, but if you miss the deadline, no tax has been prepaid and the full bill lands at filing time.

How Long You Have to Replace the Offset

The Tax Cuts and Jobs Act extended the rollover window for offsets tied to a job change. If your offset is a “qualified plan loan offset” (QPLO) — triggered by your separation from employment or by the plan itself terminating — you have until the due date of your federal income tax return for the year the offset occurred to complete the rollover. Filing an extension pushes that deadline to October 15 of the following year.³

Not every offset qualifies. If the offset happened for some other reason, like a loan default unrelated to your leaving, the standard 60-day rollover window applies instead.⁴

If you also received a separate cash distribution of your remaining balance, each piece runs on its own clock. Cash within 60 days. QPLO amount by your tax deadline. Miss either and that portion becomes taxable.²

The distribution code on your Form 1099-R tells you which situation you’re in. Code M in box 7 identifies a qualified plan loan offset. Code L means a deemed distribution from a default while still employed, which is the version you generally can’t roll over.⁵

How to Actually Do the Cash Rollover

Deposit cash equal to the offset amount into an IRA or your new employer’s 401(k) before the deadline. The money has to come from you; the old plan is not sending it. When you file your federal return, report the total distribution on Form 1040 but exclude the amount you rolled over from taxable income. The IRS recommends writing “Rollover” next to the relevant line.⁶

Hold onto your deposit receipt and your final Form 1099-R together. Those two documents are what you’d show the IRS if the rollover is ever questioned.

You are not required to replace the full amount. If your offset was $8,000 and you can only put together $5,000 by the deadline, roll over what you have. Income tax and any early withdrawal penalty apply only to the $3,000 you didn’t replace.¹

What It Costs If You Don’t Replace the Money

Any offset amount you don’t roll over in time becomes taxable income for the year the offset occurred. 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, you’ll usually also owe the 10% early withdrawal penalty on the unrolled amount.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 and a $1,000 penalty. Since nothing was withheld from the offset, the full bill is due at filing time, and if it’s large enough you could also owe an underpayment penalty for not making estimated payments during the year.

One relief valve worth knowing: the Rule of 55. If you separate from your employer during or after the calendar year you turn 55, the 10% penalty doesn’t apply to distributions from that employer’s qualified plan. For state or local government public safety employees, the age is 50. The rule waives the penalty only, not the income tax, and it applies only to the employer plan itself. Rolling the offset into an IRA and then pulling from the IRA before 59½ puts the penalty back on the table.⁸

1
Internal Revenue Service. Retirement Topics – Loans
2
Internal Revenue Service. Plan Loan Offsets
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. Instructions for Forms 1099-R and 5498
6
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
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Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions