gemini612
Sep 15, 2008, 02:49 PM
I appreciate the quick response but I also need to know about the 16k loan previously taken and not repaid due to my disability. Also can I claim hardship with this withdrawal.
Your response is greatly greatly appreciated. I do not want to find myself later in a more difficult financial situation.
Thank you
Gemini612
ebaines
Sep 16, 2008, 06:32 AM
I assume this is a continuation of the question you asked here:
https://www.askmehelpdesk.com/retirement/early-401k-withdrawal-260398.html
It is better to ask your follow-up in the same thread rather than starting a new one, so that everyone can easily follow the conversation. Just hit the "Answer this Question" button to add your follow-up.
If you take a loan and don't repay it, it is considered a withdrawal, and so taxes are due on the full amount (original loan plus subsequent withdrawals). So in your case you would owe taxes on the $34K they are making you withdraw as well as the $16K in your loan. If you don't need the full $50K, you could roll this over to an IRA and then you will owe taxes only on the portion of the $50K that you keep. If you do this, be sure to have it completed within 60 days - otherwise the IRS doesn't consider it a roll over. Also, be aware that your employer will automatically withhold 20% of the $34K, or $6.8K, for taxes. If you don't roll any of the $50K to an IRA, this $6.8K may or ay not be adequate for your particular tax bracket - you should determine whether any estimated taxes should be paid in addition to this to avoid any tax under payment penalties.
I'm not sure what you mean by "can I clam hardship with this withdrawal." The IRS set up several definitions of hardship for 401(k) plans, under which employers are required to allow employees to take a withdrawals. Many plans do not allow employees to take any withdrawals unless they are in one of those categories. So meeting a hardship definition means you are allowed to take a withdrawal, but it does not relieve you of having to pay taxes on it (and also early withdrawal penalties if you were < 59-1/2 years old).