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iloveoliver · Jan 11, 2009, 02:50 PM

I took out a loan against my 401k Jan 2007. I applied for SS disability in August 2007 and was approved. I learned of this in March 2008. I quit paying on the loan in Jan 2008. Not enough money to live and subsequently filed bankruptcy in Mar 2008. Fast forward to the present, the loan will now be reported to the IRS as income for 2008. In 2007 I withdrew money from my 401k and my ira to live on. They were reported as income but since I was disabled I did not have to pay the penalty. But I'm not so sure of the this loan since the time lapse when I took out the loan(Jan 2007) and when I started receiving SS disability (dec 2007). Does the disability extend for the entire yr (2007)? Or only Dec? I am drowning in this> right now w/out the penalty I owe $8600. For Federal

AtlantaTaxExpert · Jan 13, 2009, 12:44 PM

You will still we the income taxes on the distribution to both the IRS and the state, but you should be exempt from the 10% Early Withdrawal Penalty due to your disability status.

You should use professional tax help to file this return, and make sure the tax professional files for the exception to the Early Withdrawal Penalty.

cornutts · Apr 2, 2010, 05:34 PM

Originally Posted by iloveoliver

I took out a loan against my 401k Jan 2007. I applied for SS disability in August 2007 and was approved. I learned of this in March 2008. I quit paying on the loan in Jan 2008. Not enough money to live and subsequently filed bankruptcy in Mar 2008. Fast forward to the present, the loan will now be reported to the irs as income for 2008. In 2007 I withdrew money from my 401k and my ira to live on. They were reported as income but since I was disabled I did not have to pay the penalty. But I'm not so sure of the this loan since the time lapse when I took out the loan(Jan 2007) and when I started receiving SS disability (dec 2007). Does the disability extend for the entire yr (2007)? or only Dec? I am drowning in this> right now w/out the penalty I owe $8600. for Federal

I'm on edd disability in ca. its good for 1 yr. someother states are longer I understand,you need to apply for social security disability asap cause it takes anywere from 90 to 120 days or more.my question is does disability fine or penalize you for taking your 401k for health or to buy a primary residence. Hope this might help you!

AtlantaTaxExpert · May 6, 2010, 11:31 AM

When you take a distribution from your 401K or traditional IRA, the distribution itself is Always taxable.

What you may be exempt from is the 10% Early Withdrawal Penalty, depending on your status (disabled or not) or what the money is being used for.

Each person's case is different and must be evaluated on its own merits.