Your Gusto 401(k) loan is repaid through payroll deductions. The payment amount is pulled directly from each paycheck, based on a fixed repayment plan (also called an amortization schedule). While we process and manage your loan, your employer may be in charge of setting up loan payment deductions in their payroll system. If you got a notification about missed payments, it usually means the deductions were not set up correctly or an error happened when payroll ran. This article covers what to do if you miss payments and what happens if too many are missed.
Important: The sooner you fix missed payments, the less likely your loan is to default. Do not wait for the next payroll cycle to act.
If you get notifications about missed loan payments, take these 2 steps right away:
Contact your company's 401(k) administrator to confirm they have set up your loan payment deductions in their payroll system
Make up missed payments through your Gusto Retirement dashboard. Learn how to make Gusto 401(k) loan payments outside of payroll
When you miss a loan payment, you have a set period called the cure period to make up the missed payments. For Gusto 401(k) loans, the cure period is 90 days from the missed payment date.
After a missed payment, any new contributions are credited toward your oldest debt first. If you do not catch up before the cure period expires, your loan will default. In this case, the IRS treats the entire remaining balance as a deemed distribution. This means it is counted as taxable income, even though you did not get a cash payout.
Once a loan defaults and is deemed distributed, you will owe federal and state income taxes on any pre-tax portion for that tax year. If you do not qualify for an exemption, you may also owe an extra 10% early withdrawal penalty tax on the full remaining balance.
Note: A deemed distribution does not remove the loan from your account, and you may still owe on the loan balance even after paying taxes. Consider talking to a tax advisor if your loan has defaulted.