How to Set up a 401(k) Loan Repayment Deduction
If your 401(k) plan allows employees to take a loan from their retirement account, your 401(k) provider will notify you when a loan is approved and processed. Your provider will send you a notice with the full amount of the loan including interest, the number of payments, and the loan repayment amount per paycheck.
And if you have a Vestwell 401(k) plan that allows for employee loans, you’ll notice there will be an after tax company-level deduction automatically set up to use for loan repayments called “VW 401(k) Loan Repay.” You still need to add the employee’s deduction yourself in Patriot. Unlike the employee-level deduction and company contributions, these deductions are not automatically set up for you.
If you have a 401(k) plan that’s not with Vestwell, you must create a company-level loan repayment deduction first. Set it to “post-tax,” “fixed dollar,” and leave the remaining fields blank.
Once you have confirmed that your company-level deduction has been set up, you’re ready to assign the loan repayment deduction to your employee:
- Go to Payroll > Employee List > Select Employee’s Name.
- Click the “Deductions & Contributions” link in their record.
- Under the Deductions section, click “Add New.”
- Select the “VW 401(k) Loan Repay” deduction from the dropdown list.
- The Type of “Post-Tax” and Method of “Fixed Dollar” are prefilled since these are set at the company level. Loan repayments are always after-tax.
- For Amount Per Pay, enter the loan repayment amount per paycheck that appears on your loan notice.
- For Limits, enter the Lifetime limit of the total amount of the loan repayment, which is the principal plus interest. Once the deduction reaches this limit, it will automatically stop.
If you have an employee who has taken multiple 401(k) loans, consider keeping each loan repayment as a separate deduction so that you can track the deduction history and limits separately for each loan. If you are a Vestwell customer and assign a loan deduction to an employee, Patriot will automatically create another company-level loan deduction to use as needed.