Chartered Retirement Planning Counselor (CRPC) Practice Exam 2026 – Comprehensive All-in-One Guide for Exam Success!

When a participant fails to repay a loan from a retirement plan within the stipulated time frame, the loan is typically treated as a taxable distribution. This means that the outstanding loan balance is considered a withdrawal from retirement funds, subjecting it to taxation and potentially to early withdrawal penalties, depending on the participant's age and the rules of the specific retirement plan.

This treatment serves as a critical deterrent, encouraging individuals to adhere to loan repayment schedules to avoid the tax implications. Failing to repay the loan not only results in a tax liability but can also impact the participant's retirement savings, as the amount is no longer growing tax-deferred within the plan.

In contrast, the other options present scenarios that do not align with common retirement plan regulations. For instance, loans being forgiven or remaining interest-free indefinitely are not standard outcomes, and losing the entire account balance for a loan default would be excessively punitive. Thus, the correct answer accurately reflects the regulatory framework surrounding retirement plan loans.