I am 58 years old took a loan from 401k and now have been terminated will I have to pay penalty?

You do not have to pay back the loan if you can't. This is because you have borrowed your own money. But, the law states that once you leave your current employer, you have 60 days to pay off the loan or it converts to a distribution, subject to income tax and early withdrawal penalty if under age 59 1/2.

You can't continue to pay the loan past 60 days. Once the 60 days has past, you can do a 401(k) rollover to an IRA. The outstanding loan will have been cancelled.

You can then make withdrawals from the IRA as you need the money. You can, at that time avoid the 10 % early withdrawal penalty if you follow the 5 year separate an equal withdrawal tables. The rule states you must make separate and equal withdrawals according to a government table till age 59 1/2 or 5 years, whichever is longest.

The tax and penalty on the loan, (now a distribution) needs to be paid in the tax year the loan expired. If the loan expires after January 1st 2012, the tax is not due till the 2013 tax year.