<prompt> Human: Posting for a coworker. Coworker has a loan out on her 401k for approximately 7k. She is quitting her job in a couple months for whatever reason. I dont know. She has 17k total in the 401k. So, 10k if you take away the loan she has out. Her question: Can she cash out her 401k after she quits to pay off the 401k loan and then move the remaining 401k funds to a private retirement account? She realizes the employer will have to hold 20 for taxes and that there is a 10 penalty on top of that. Edit: Okay, so what Im finding out is that she has 60 days to pay it back, then she has to take that 10 penalty when she files her taxes this year if she cant pay it back. She can still choose to cash out her 401kreinvest it, though, right? Updated TLDR: Can an employee cash out her 401k with an outstanding 401k loan and use the 401k balance to pay off the loan and just accept the penalty for the early withdrawl? Can she then reinvest the remaining funds into a private retirement account if she plans to be self employed?  <response>: Can an employee cash out her 401k with an outstanding 401k loan and use the 401k balance to pay off the loan and just accept the penalty for the early withdrawl?Just a clarification - she does not need to cash out the remaining 10k in order to pay off the loan - it is just that the 7k loan will be treated as having been cashed out if it is not paid back within 60 days of leaving the employment. So her taxes and penalty will only be calculated on that 7k, and she should still have 10k in the account which she can then roll over to an IRA without taxes or a penalty. 