I owe approx $50,000 in income tax due to some errors on a start up business. The IRS is going to put a lien on my house if the amount due isn't paid in 30 days. I don't want it to affect my credit. Can you take a loan against your 401k? My plan is to pay it back by the end of 2008.

Most plans have a loan provision. So check with your plan administrator. Most will require payroll deductions, but you can repay it in full anytime you want.

Just supporting the answer scott gave.

You must talk to your admin to get the details of how that plan is run.

We could take money out of my wife's 401k and spend it on whatever we wanted (we wont) but the savings account I had through teaching had no such provision.

Quote:

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Originally Posted by kp2171

we could take money out of my wifes 401k and spend it on whatever we wanted (we wont)

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Umm, you can't just take money out of a 401K. While some plans allow for In service withdrawals, there are penalities attached. That's why most plans have a loan provisions. Teachers are generally covered under a 403b plan which is similar, but works differently.

*sigh*

Yes, I understand the plan through the univ isn't the same as a 401k... my point isn't less relevant... not all savings plans are administered the same. Wasn't trying to cloud the issue. I have a 401k also that isn't admin the same as my wife's. The point is the same.

Actually we can just pull 10k out of our 401k for whatever reason we want... the OP asked about a loan. I answered in the context of a loan from wife's program in her current situation.

Yes, there are repayment issues and terms of the loan. I assumed the poster would know that you don't take a loan without terms unless its from your uncle bob who has cash to burn and likes to give it away. OK. My point was that HER plan is very flexible, others aren't always so flexible.

I never said we could pull money out and not be subject to the admin rules. That would conflict with my telling the OP to contact the admin about the specific rules.

Man.. working hard just to agree here.

The problem I had with your response is that 401K rules make it very difficult to get money out of the plan prior to 59 1/2. The plan is designed for retirement benefits and gives tax breaks to allow people to save for retirement. If you wish to use the money for anything OTHER than retirement there are generally penalties involved. The IRS rules prevent plans form just allowing a participant to just request a withdrawal. Plans are not required to allow in service withdrawals. If they do allow them, they have fit into certain hardship rules. Even then, there are penalties and tax consequences involved. Loans are allowed, though a plan does not have to allow them, because they are paid back with interest. So the retirement benefit is not compromised.

I know of no 401K that would just allow a participant to withdraw money without reason and/or penalty.

We investigated a 401k loan five years ago. Needed to buy two vehicles and do some work on the house. The loan from her 401k would have required interest paid back, a choice of repayment time (1-3 years I think?), there was a cap on the amount that could be borrowed. Shed have to pay it all back within a short time if she left the company. But she was not going to have to prove to anyone what the money was going to be used for.

We didn't go that route. I believe, as I know you do, that retirement money should be left alone. Bought one car with savings, waited on another, and went a diff route on the home.

But I promise you, there was no proof of hardship needed for a loan. It was not going to be a hardship withdrawl. As for the penalties, again... I said it before, I assumed this was covered when I said "check your plans details"... I have yet to state there was no penalty or conditions on the loan, though that keeps getting brought up.

For a loan, yes, no reason needs to be given. But you weren't making it clear that you were referring to a loan. As to the interest, yes, they have to charge interest, but the interest goes back into the participant's account. So you are basically paying yourself interest.