[IWANNAKNOW]

Hi,

First of all, moderators, if this is in the wrong area please feel free to move it. I feel that the questions I'm asking may fall into many categories. Thanks

Let me start with a little back ground about my situation.
I'll try to keep it short but it will be hard. First of all I was forced to quit working after 18 years of employment due to MS during the first week of April 2007. Luckily I had disability insurance that doesn't quite cover all of my bills, but it is better than the alterative. When I quit working in April, I had a 401k with approximately $27,000 dollars in it. I am currently in the process of applying for SSD and to my understanding; once SSD begins paying me benefits (however long that will take) my disability benefits will be reduced by the amount SSD pays me. So, I have a few questions………

**I'm assuming that once the SSD benefits begin, I'll receive benefits that will be backdated to the day I first became disabled if I'm approved. I am also assuming I'll have to pay back the disability insurance provider any overpayments that they have paid to me during the time I received back payments for SSD. True or false.

**My employer has told me that the insurance premiums for my disability insurance coverage were paid by both my employer and me. The employer paid 10% of the premiums and I paid the other 90%. So to my understanding I'll only have to pay taxes on 10% of the benefits paid to me. True or false.

**My employer has told me that I'm allowed to take money from my 401k without penalty because of my disability. The 401k provider will still take out 20% for taxes and penalties but I can reclaim the 10% penalty when I do taxes at the end of the year. True or false.

**My only source of income is the disability insurance payments and possibly SSD down the road. I also have the $27,000 in my 401k but no other savings. Can any of this money be garnished if I get behind on any of my bills? If I roll my 401k over to an IRA, can it be garnished? Can anything I own be taken away from me to settle debt I owe? I have one car and a house with household furnishings and a 401k with $27,000 in it and that about all I have.

**Now about the 401k money. My employer has given me the papers to withdraw money from my 401k plan. Would it be better to leave the money in the 401k and take out money as I need it or roll it over into an IRA and then take money out as needed? What are the advantages and disadvantages of each? Also is there a limit to how many times a year I can take money out of the 401k or IRA? My intentions are to take some of the money (About $10,000) to make some needed repairs to my home. I may also need to take out some money out to pay some of my annual dues like home owners insurance, property taxes and car insurance as needed. I will also need to start making COBRA payments to keep my health insurance which I currently can't afford. Or should I borrow against the 401k? Remember though, I don't have enough money coming in right now to pay all my expenses so adding another bill is only going to make matters worse.

**Now, about my debt. I owe approximately $13,000 on installment loans that I created to make some home improvements. These loans are only secured by the home improvements that were performed. (Windows, gutters and water filtration system) I also owe about $10,000 on an installment loan for a time share which is secured only by the property purchased. I don't care about this time share at all. I've been trying to sell it for the last two years with no luck.
As you can see, my 401k isn't going to be enough to pay for everything. I would like to offer them a reduced settlement (30-40% on the dollar) to clear up the debt but is this something I can do on my own or do I need to go though a debt consolidation advisor to do this? Also should I look into doing this now while all my bills are still current (not for long though) or should I wait until I get behind on these debts and it goes to collections? I wonder about this because when I contacted these debtors about my situation, one of them didn't even want to know about my disability or hear from me until I was behind on my payments!! If I get behind on these debts, what are the chances that these debtors would come to my house and try to remove the windows etc. for non payment? Will they be able to garnish my disability income or take my 401k or IRA away from me? If so, maybe I should make the repairs to my house before things get that bad. I have been making regular payments on all of these things for the last two years but I feel that I may not be able to continue to pay these debts.
Wow, did I just ask all these questions? It seems that I have more but these are the only one I can come up with right now. I know this is a lot to ask, sorry. I tried to keep it as short as possible. I hope that I can find some answers to these questions here. Maybe someone here can point me in the right direction to get some answers and maybe advise on what to do. Thank you in advance to anyone who can answer some of these questions.

Phil

[Fr_Chuck]

**Now, about my debt. I owe approximately $13,000 on installment loans that I created to make some home improvements. These loans are only secured by the home improvements that were performed. (Windows, gutters and water filtration system) I also owe about $10,000 on an installment loan for a time share which is secured only by the property purchased. I don’t care about this time share at all. I’ve been trying to sell it for the last two years with no luck.
As you can see, my 401k isn’t going to be enough to pay for everything. I would like to offer them a reduced settlement (30-40% on the dollar) to clear up the debt but is this something I can do on my own or do I need to go though a debt consolidation advisor to do this? Also should I look into doing this now while all my bills are still current (not for long though) or should I wait until I get behind on these debts and it goes to collections? I wonder about this because when I contacted these debtors about my situation, one of them didn’t even want to know about my disability or hear from me until I was behind on my payments!! If I get behind on these debts, what are the chances that these debtors would come to my house and try to remove the windows etc. for non payment? Will they be able to garnish my disability income or take my 401k or IRA away from me? If so, maybe I should make the repairs to my house before things get that bad. I have been making regular payments on all of these things for the last two years but I feel that I may not be able to continue to pay these debts.
Wow, did I just ask all these questions? It seems that I have more but these are the only one I can come up with right now. I know this is a lot to ask, sorry. I tried to keep it as short as possible. I hope that I can find some answers to these questions here. Maybe someone here can point me in the right direction to get some answers and maybe advise on what to do. Thank you in advance to anyone who can answer some of these questions.

Phil[/QUOTE]

If the premium of your disability insurance was paid with pre tax ( untax dollars) then it will be taxable, if it was paid with post tax dollars it will not be taxable) ** that is a basic rule to know if it has to be paid or not.
So if you paid for your insurance though a plan where you did not pay taxes on the payments, You should check with the insurance company on the tax liability.

There are special hardships reason for withdraw from your 401K. I contact the administrator for the 401K, because if the penalty is not payable, there is no reason for them to take it out to start with.

What they can take, what they can place a lien on, all depends on the state you live in, they type of debts you owe and the such. In general IRA and 401K can not be garnished.

I would think that borrowing against the 401K would be the best. You should talk to the plan administor on what would be the best.

[ScottGem]

**My employer has told me that the insurance premiums for my disability insurance coverage were paid by both my employer and me. The employer paid 10% of the premiums and I paid the other 90%. So to my understanding I'll only have to pay taxes on 10% of the benefits paid to me. True or false.

I believe this is false. Insurance proceeds shouldn't be taxable at all.

**My employer has told me that I'm allowed to take money from my 401k without penalty because of my disability. The 401k provider will still take out 20% for taxes and penalties but I can reclaim the 10% penalty when I do taxes at the end of the year. True or false.

You may even get the plan to not withhold the 20%. Generally, the penalties are due when you file taxes, so if they do withhold the 20%, you will have to pay taxes on what you withdraw as ordinary income. Since you won't have salaried income past April, your tax liability should be greatly reduced.

**My only source of income is the disability insurance payments and possibly SSD down the road. I also have the $27,000 in my 401k but no other savings. Can any of this money be garnished if I get behind on any of my bills? If I roll my 401k over to an IRA, can it be garnished? Can anything I own be taken away from me to settle debt I owe? I have one car and a house with household furnishings and a 401k with $27,000 in it and that about all I have.

As long as the 401K remains in the plan or an IRA, it should be exempt from garnishment. Generally, personal property like cars and a primary residence are also exempt.

**Now about the 401k money. My employer has given me the papers to withdraw money from my 401k plan. Would it be better to leave the money in the 401k and take out money as I need it or roll it over into an IRA and then take money out as needed? What are the advantages and disadvantages of each? Also is there a limit to how many times a year I can take money out of the 401k or IRA? My intentions are to take some of the money (About $10,000) to make some needed repairs to my home. I may also need to take out some money out to pay some of my annual dues like home owners insurance, property taxes and car insurance as needed. I will also need to start making COBRA payments to keep my health insurance which I currently can't afford. Or should I borrow against the 401k? Remember though, I don't have enough money coming in right now to pay all my expenses so adding another bill is only going to make matters worse.

You really do not have enough to take the money out piecemeal. So I would vote for taking the money and using it as quickly as possible to pay bills and expenses.

**Now, about my debt. I owe approximately $13,000 on installment loans that I created to make some home improvements. These loans are only secured by the home improvements that were performed. (Windows, gutters and water filtration system) I also owe about $10,000 on an installment loan for a time share which is secured only by the property purchased. I don't care about this time share at all. I've been trying to sell it for the last two years with no luck.
As you can see, my 401k isn't going to be enough to pay for everything. I would like to offer them a reduced settlement (30-40% on the dollar) to clear up the debt but is this something I can do on my own or do I need to go though a debt consolidation advisor to do this?

I would explain to your creditors that you are now disabled and on disability income. I would start offering the home improvement creditors a cash settlement from your 401K of $7K and hope they will accept no more than $10K. Given your situation and the bad publicity they would get from suing a disabled person I think you can get a settlement. For the time share, did you buy a deeded property or a contract? In either case, you should be able to to get them to just take back the property. Especially if they are still in a sale mode. Again, play on your disability. If they are still in sale mode, they should have no problem with reselling the property so they should agree to take it back.

If you can get your debts settled (and again, don't wait until you are in arrears), then you won't have to worry about having any assets attached.

Good Luck.

[IWANNAKNOW]

Yes, insurance premiums were paid for with pretax dollars.
The time share property is a deeded property.
Also, I am in the state of Georgia.

Thanks for your replies so far.