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    pooltime1966's Avatar
    pooltime1966 Posts: 1, Reputation: 1
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    #1

    May 31, 2012, 11:31 AM
    Can I use 401K to pay the IRS?
    If I have a loan on my 401k and I owe the IRS 50,000.00 can I still have them take it out of what's in my 401k?
    Fr_Chuck's Avatar
    Fr_Chuck Posts: 81,305, Reputation: 7692
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    #2

    May 31, 2012, 12:39 PM
    The only thing you can take out of the 401K is the difference between the balance and the loan. You can not have the loan money and take out that amount both.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,784, Reputation: 846
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    #3

    May 31, 2012, 12:41 PM
    You CAn do that, but it is NOT the best solution, because you then would pay MORE taxes on the early distribution from the 401K, PLUS pay the 10% Early Withdrawal Penalty.

    If you OWE $50,000 and you do not have it, contact an enrolled agent (EA) or CPA and enter into negotiations with the IRS to submit an Offer in Compromise to pay less than what is owed. It may cost you about $1,000 in fees, but if the EA/CPA reduces the bill from $50K to $10K, it is money well spent!
    ebaines's Avatar
    ebaines Posts: 12,132, Reputation: 1307
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    #4

    May 31, 2012, 12:43 PM
    Quote Originally Posted by pooltime1966 View Post
    If I have a loan on my 401k and I owe the IRS 50,000.00 can I still have them take it out of what's in my 401k?
    Depending on the rules of your 401(jk) plan your employer may not allow you to withdraw money from your 401(k) to pay the IRS unless the IRS puts a lien on the account. Have they? If yes, and if you have a loan outstanding it's possible that as you repay the loan the money would be transferred to the IRS to pay off the lien. But be aware that any money taken from the 401(k0 is considered income to you, so you will owe income taxes on it, which is a bit ironic given that you're taking the money to pay income taxes. The only good news (if you can call it that) is that the normal 10% early withdrawal penalty is waived for withdrawals from a 401(k) due to an IRS levy.

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