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    viewsonic1's Avatar
    viewsonic1 Posts: 9, Reputation: 1
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    #1

    Dec 3, 2008, 05:26 PM
    401K loans
    I have approximately $35K in loans. Leaving me a $75K balance. My annual salary is $75K. If I take the $75K out and use it to pay the $35K, how will I be taxed? I live in IL. Any help would be greatly appreciated.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
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    #2

    Dec 3, 2008, 05:29 PM

    That won't work. And its extremely foolish. If you cash out your account, you will pay a 10% penalty on the WHOLE balance ($110K). In addition, that $110K will be added to your taxable income. Since the interest on the 401K loans goes back to you, you would be losing a significant amount of money to pay off the loans.
    viewsonic1's Avatar
    viewsonic1 Posts: 9, Reputation: 1
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    #3

    Dec 3, 2008, 05:32 PM
    Scott,

    Thanks for the quick response. It may seem foolish but I need to leave my job and want to tie up all lose ends. Any better suggestions?

    Thanks
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    viewsonic1 Posts: 9, Reputation: 1
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    #4

    Dec 3, 2008, 05:35 PM
    One other thing, I will not be seeking new employment, so I will not have any income to pay off the loans.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
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    #5

    Dec 3, 2008, 05:36 PM

    Yes, I'm actually in a similar situation. I am leaving my company have about $3500 in loans balances. My plan is to take a short term loan (probably from a HELOC) to pay off the balance within the time frame. When I get a new job, I'll rollover the account into my new plan and take a new loan. I've done this with 2 previous job changes.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
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    #6

    Dec 3, 2008, 05:38 PM
    Quote Originally Posted by viewsonic1 View Post
    One other thing, I will not be seeking new employment, so I will not have any income to pay off the loans.
    Are you of retirement age?

    If there is no way for you to pay the loan balances, then let them convert the loans to an inservice withdrawal and just take the penalties on that.
    viewsonic1's Avatar
    viewsonic1 Posts: 9, Reputation: 1
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    #7

    Dec 3, 2008, 05:39 PM
    But I won't have any income coming in to payback any type of loan, HELOC or 401K. I appreciate your responses and wish you good luck, with the loan payment and in seeking new employment.:)
    viewsonic1's Avatar
    viewsonic1 Posts: 9, Reputation: 1
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    #8

    Dec 3, 2008, 05:40 PM
    Unfortunately, I am not of retirement age.
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
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    #9

    Dec 3, 2008, 05:43 PM

    I'm curious, why won't you be seeking new employment?
    viewsonic1's Avatar
    viewsonic1 Posts: 9, Reputation: 1
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    #10

    Dec 3, 2008, 05:43 PM
    Will be staying home to care for an ailing parent. :(
    ScottGem's Avatar
    ScottGem Posts: 64,966, Reputation: 6056
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    #11

    Dec 3, 2008, 05:50 PM

    Well, I would then leave the balance and just take the penalty on the loan balance. Since you probably won't get the notice until next year, you will have little income to tax.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #12

    Dec 4, 2008, 07:37 AM
    Answered via email
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