[planquestion]

I took out a 401k Loan for $15,000 and it states that if you leave your job the full loan amount is due within 60 days of termination of employment. My 401K has $30,000 in it currently. I can not pay $15,000 within 60 days! What do I do? Does the company just take $15,000 out of my 401K or do I have to pay taxes on that $15,000? Do I have to take a distribution and pay them?

[smoothy]

Since a 401K loan is a loan to yourself... not paying it back legally would be considered a disbursement and subject to both taxes and penalties for early withdrawl.

[planquestion]

So what would my penalty and taxes usually be on that much? Would I just have to report it on my income tax reports and pay any differences by April 15th? When I take the new job can I still rollover that $30,000 or take only a portion of it to pay for the taxes and penalty on the $15,000?

[smoothy]

Hilfemind does not find this helpful : not helping enough
Give yours Helpful Not helpful *Required*


Try reading the rulese pertaining to giving not helpful comments... its not the first time you have done that either.

Your comment was rude, ignorant and totally unacceptible.

There was NOTHING I said that was either wrong or inaccurate. And I defy you to prove otherwise.

You are being reported to the site administrators.

[planquestion]

Smoothy you helped me! I just had more questions. Not sure why you got rated a not helpful.

[smoothy]

Smoothy you helped me! I just had more questions. Not sure why you got rated a not helpful.

That poster in his One single thread on this site says he is a 16 year old boy... that says everything about them.

I am not sure the exact hit you will have between the taxes and penalties ( I have to pay a CPA to do my taxes)... but a rough estimate will be whatever tax bracket you are in this year (as that will be considered taxible income) +10% I believe the penalty to be for early disbursement. Not sure if other penalties might apply.

Leave that other money in the 401K where its at until you can roll it over into a new one... if that money crosses your hands at any point (other than in a loan) its taxible income... and the rules of moving it without penalties are pretty specific.

That's in what it will cost you now... you already know about the lost opportunity costs of that money not being there... but I know that part isn't a concern right now.

I'm sure if you found your original loan paperwork it would spell much of this out in it.

But like I said... a 401K loan is loaning money to yourself... that is in effectively a tax shelter as that money was never taxed as income yet. And that money will be taxed at whatever bracket you are in at the time you retire or hit the minimum age to begin. Anything earlier has the penalty to discourage you from doing it.


You WILL have to report it on your taxes this year... The 401K administrator would be submitting matching paperwork to the IRS so yeah... they are going to know about it. They should be sending you papers as well but do make a note to yourself to not forget it in the off case you lose or accidentally toss it out. You don't want to have to explain 3 years from now why you didn't and have the penalties and interest owed to the IRS.

If this is over an involuntary job loss... like a layoff. And you don't find another job and this results in owed money... talk to a tax expert as to your options... like income averaging. That's beyond my ability to comment on.

[ebaines]

PlanquestIon:

To reinforce what smoothy said: If you don't repay the $15K loan within 60 days of leaving your job then it automatically gets reclassified as a withdrawal. They will issue you a 1099-R form at the end of the year which will state you have $15K in income with no taxes withheld. When you do your 2010 tax return you include this $15K as retirement income, and it is fully taxable at whatever your tax bracket is (which is dependent on your filing status and total adjusted gross income for 2010). You must also add $1500 to the taxes you owe for the 10% early withdrawal penalty. And depending on what state you live in you may have to include the $15K as income for your state/local taxes as well. Bottom line is: be prepared to write checks in April to the IRS and your state for perhaps a total of $5000.

The $30K remaining in your 401(k) can stay there - you are not required to touch it, so no need to be in too much of a hurry to roll it over. Give yourself some time to figure out how you want to invest it. You can leave it there, or put it into your new 401(k) under your new employer's plan, or set up your own rollover IRA. I would NOT advocate taking another withdrawal to pay your tax bill, because after all you'd owe additional taxes and penalties on that as well.

[planquestion]

That helps me out a lot. Thank you

[planquestion]

Thanks