Can I internally surrender a defaulted loan?

Only if there is a distributable, or triggering, event. Hardships are NOT triggering events! Triggering events are: age 59 1/2, severance from service, disability or death (these are the only reasons a loan should be taken off of an account unless it is paid back in full). Otherwise, the entire contract would become taxable.

Nothing contained herein is intended to be, nor should it be construed as tax or legal advice. If you have a tax question or legal question, please consult your tax professional or attorney.

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