I had an outstanding 401K loan with my previous employer which was suppose to be paid within March, but I forgot, in fact I thought it was suppose to be paid in April... :mad: :mad:
I just received a statement confirming foreclosure of the existing loan. I pretty upset at myself because I was really trying to avoid giving my money to auncle Sam from the very beginning. The loan is for 5k and I will be talking to my Accountant for some tips and advises, but I'll like to know if anyone can tell me how much damage can 5k withdrawal can cause. I live in VA, married, with two children and a homeowner.
I'll appreciate any advise and information. :confused:

When I did it I believe it was 20% federal and 2% state tax. Not sure what your tax would be in your state. For $5K , shouldn't be too much. I cash out mine at $23K. I was hit with $5060.00 taxes.

See your tax preparer though.

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Originally Posted by jterryva

I had an outstanding 401K loan with my previous employer which was suppose to be paid within March, but I forgot, in fact i thought it was suppose to be paid in April... :mad: :mad:
I just received a statement confirming foreclosure of the existing loan. I pretty upset at myself because I was really trying to avoid giving my money to auncle Sam from the very beginning. The loan is for 5k and I will be talking to my Accountant for some tips and advises, but I'll like to know if anyone can tell me how much damage can 5k withdrawal can cause. I live in VA, married, with two children and a homeowner.
I'll appreciate any advise and information. :confused:

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You would pay your going rate of tax on the 5k and 10% penalty (500.00) That is, if you put pre-tax dollars into your 401k in the first place. If you put post-tax dollars in the 401k, and the loan is against post-tax dollars, then you would probably only have to pay the 10% penalty (500.00) to IRS at tax time. But most people use pre-tax dollars to pay into their 401k, and that would be your regular tax % on the 5k plus 10% of the 5k, which is 500.00. Start saving now... or all the usual penalties will incur if you can't pay all your taxes at tax time.

There's no such thing as a foreclosure on a 401K loan. If you leave employment with an outstanding loan you have to pay back the balance within a certain time frame, otherwise the balance is considered a withdrawal.

I would double check with your plan administrator to make sure its not too late to do so.

However, if it is, then you will need to pay a 10% penalty and the outstanding balance will be added to your 2007 taxable income. Your tax bracket and deductions will determine what the taxes owed will be.

Note: in the case of a withdrawal, 20% is required to be withheld against your tax liability, but that is a withholding, NOT the actual amount of taxes.