Citi Benefits Handbook
Defaulted Loans
If you fail to make a required loan payment in immediately available funds by a date that is five business days prior to the end of the calendar quarter following the quarter in which the repayment was due or if you fail to make a required loan payment following your termination of employment, your loan will be considered to be in default. If you have defaulted on a loan from the Plan, or any plan merged into the Plan:
  • The outstanding principal amount of the defaulted loan will be reported to the IRS as a taxable distribution to you and subject to applicable income tax.
  • The outstanding principal amount of the defaulted loan will be considered outstanding for purposes of determining the maximum amount available for any new loan.
  • The loan will be included when determining the number of future loans available to you.
If you are an active employee, you can always repay any previously defaulted loans in full, but this will not change the tax treatment of the deemed distribution described above. If you repay a defaulted loan, it will no longer be included in determining the maximum number of loans or maximum loan amount available to you. However, your defaulted loan will still be treated as a taxable distribution from the Plan even if you later repay it. If you repay the loan, you will have tax basis in the amount of the repayment so that the same amount will not be taxable again when distributed.
Examples
  • You defaulted on a loan in March 2016. The maximum number of loans you can take at any time is one. If you repay the defaulted loan, you can have a maximum of two loans outstanding at any time, and you would be eligible to apply for the maximum of two loans available under the Plan.
  • You default on a loan taken on or after January 1, 2002. Interest has continued to accrue on the defaulted loan. If you later decide to repay the loan, the loan payment amount will include interest from the time of your last payment.
If you request a full distribution of your account balance and have an outstanding loan with the Plan, the balance of your loan will be treated as part of that distribution and will be subject to applicable income tax. In addition, the distribution of your outstanding loan balance may be subject to a 10% early withdrawal penalty tax.