What Happens to Your 401(k) Loan on a Leave of Absence?

If you take an unpaid leave of absence, IRS rules let your plan suspend your 401(k) loan payments for up to 12 months without the loan defaulting or becoming taxable. Interest keeps accruing, and when you return, or when 12 months pass, whichever comes first, payments must resume, either re-amortized at a higher amount or caught up with a lump sum. Military leave gets longer protection, because payments can be suspended for your entire period of uniformed service.

By the About401K editorial team · Facts verified against Treas. Reg. §1.72(p)-1, Q&A-9 and IRC §414(u) · Updated September 24, 2026

Do my 401(k) loan payments stop automatically when I go on leave?

Not automatically, and this is the detail that causes almost every problem on this page. Suspension is a plan feature your administrator applies. It is not something that happens by itself because you filled out leave paperwork.

When your employer codes you as being on an approved unpaid leave, most plans stop the payroll deduction and flag the loan as suspended. If your leave is paid, payroll deductions usually continue and nothing changes at all.

The dangerous gap is an unpaid leave where the plan does not suspend the loan. Payments are still technically due, payroll is not taking them, and the missed payments quietly start the clock toward default. Nobody is likely to call and warn you.

So before your leave starts, ask HR or your plan’s recordkeeper two specific questions. Is my loan suspended for this leave, and if it is not, how do I make manual payments? Getting those answers in writing takes one email and prevents the worst outcome on this page.

401(k) loans and FMLA leave

FMLA is a job-protection law. It says nothing at all about 401(k) loans, which is why searching the statute for an answer leads nowhere.

What actually matters is whether your FMLA leave is paid or unpaid. If it is unpaid, or paid through an outside insurer rather than your paycheck, the plan can suspend your payments under the 12-month rule above. If you are using accrued PTO so that your paycheck continues, the deductions typically continue right along with it.

Either way, the loan does not default merely because you took FMLA leave. Default happens only if payments are missed without a suspension in place and the cure period then runs out.

401(k) loans and short-term disability leave

The same framework applies here, with one wrinkle worth understanding. Short-term disability pay usually comes from an insurance carrier rather than your employer’s payroll. Money is coming in, but there is no paycheck for the plan to deduct from.

Plans handle that in one of two ways. Most treat it as an unpaid leave for loan purposes and suspend payments. Others ask you to pay directly, typically by ACH or with a coupon book. Ask your administrator which one applies to you. Do not assume the deduction is happening, and do not assume it isn’t.

Maternity and parental leave

Parental leave is handled exactly like any other leave, and the paid-versus-unpaid question decides everything. If you are paid through payroll, deductions continue. If your leave is unpaid or paid by an insurer, the plan may suspend payments for up to 12 months and then re-amortize the loan.

If you expect to extend your leave beyond 12 months, talk to the administrator before month 12 arrives. After a year of suspension, payments must resume even if you are still out with your child, and missed payments from that point follow the normal default timeline.

Military leave: stronger protection

If you are called to uniformed service, two extra protections apply, and they are meaningfully better than the ordinary leave rules. Under IRC §414(u) and USERRA, your loan payments can be suspended for the entire period of service rather than just 12 months, and your repayment term is extended by the length of that service. Because the deadline moves with you, there is no balloon catch-up waiting at the end.

Separately, the Servicemembers Civil Relief Act caps the interest rate at 6% during service on a loan you took before active duty. Like the suspension, the cap is not automatic. You must request it and provide a copy of your orders.

What happens when I come back from leave?

The loan still has to be paid off by its original end date, which is 5 years from origination for a general-purpose loan and longer if it was a principal-residence loan. Since the deadline did not move but several months of payments did not happen, the plan has to make up the difference in one of two ways.

• Re-amortization (most common): the outstanding balance, including interest that accrued during the suspension, is spread over the remaining term, so each payment is higher than before.
• Lump-sum catch-up: you pay the missed amounts (plus accrued interest) at once and resume the original payment.

Re-amortization after a suspension is a recalculation of the same loan, not a new loan or a “refinance.” It does not restart your term, and it does not count against any one-loan-at-a-time limit in your plan.

Here is the sequence that keeps the restart clean.

1. About two weeks before you return, call the recordkeeper. Ask for the current loan balance including the interest that accrued while payments were suspended, and ask for your new payment amount.
2. Ask which catch-up method the plan is using. Re-amortization spreads the shortfall across the remaining payments. A lump-sum catch-up asks for it all at once, and you want to know which one is coming before it hits.
3. Confirm HR has coded your return-to-work date. The payroll deduction restarts from that code, so a late entry means late payments even though you are back at work.
4. Check your first two pay stubs after you return. If the loan deduction is not there, call that same week. This is exactly how a cure period gets used up without anyone noticing.
5. Re-budget for the higher payment. A step-up of $100 or more per month is common after a long suspension, and it lands at the same time as every other bill you deferred during leave.
6. If the new payment is genuinely unaffordable, call before you miss one. Ask whether a partial lump-sum payment toward principal would bring the re-amortized payment back down to something you can carry.
7. Keep the confirmation. Save the email or the letter showing the suspension dates and the new schedule, so you have proof if a payment is later coded as missed.

Taking a new loan during leave

This is legally possible but practically difficult. Many plans require loan repayments to run through payroll, and with no paycheck there is nothing to deduct from, so a lot of plans simply will not originate a new loan for someone on unpaid leave.

If your plan allows direct-debit repayment, it may be possible. You will have to ask, because policies vary more here than almost anywhere else in loan administration.

Employment ending during leave

If your employment ends during or after the leave, the outstanding balance is treated like any other loan at termination. The plan will offset it if you do not repay, meaning it reduces your account by the balance you owe.

Under post-2018 law (TCJA), you then have until your tax-filing deadline, including extensions, for the year of the offset to roll the offset amount into an IRA or a new plan and avoid both the tax and the penalty. The old 60-day or 90-day rule no longer applies to plan-loan offsets, so any article telling you otherwise is out of date. Details are on the default and offset page.

How the big recordkeepers handle it

Fidelity, Empower, Vanguard, Principal, Voya, and Merrill all support leave-of-absence loan suspension, but the mechanics differ from one to the next. Some apply it automatically from the employer’s payroll feed. Others require the employer to submit a leave form before anything happens. Several offer direct ACH repayment during leave, which avoids any catch-up at all.

Whoever your provider is, the sequence for you is the same. Notify HR of the leave, ask specifically whether the loan is suspended, and get the answer in writing before your last paycheck.

Related reading

• How 401(k) loan repayment works
• Loan default, deemed distributions, and offsets
• 401(k) loan rules: the full guide

Sources: Treas. Reg. §1.72(p)-1, Q&A-9 · IRC §414(u) · IRS: plan loans