Deleted
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Post by Deleted on Aug 19, 2011 11:48:50 GMT -5
Hi
My husband previously took out a 401k loan for $7000. It was used as a down payment on his house in 2009 but he took a general loan rather than whatever home buying loan they had.
He now has a balance of $4800 and is leaving his company today.
I understand he has to pay it back or face taxes on penalties.
What I can't determine, from much reading, is what the taxes / penalties are based on.
His salary this year will be in the region of $100,000 so, from what I understand, his tax bracket will be 28%. On top of this there is a 10% penalty.
Is this 28% + 10% on the whole $7000 or just the remaining balance ?
Is the 10% of the total figure or 10% of the tax due ?
I can't seem to get a definitive answer from anywhere including the IRS site so hope you can help me.
Thanks
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Deleted
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Post by Deleted on Aug 19, 2011 11:52:35 GMT -5
The tax and penalty would be based on the remaining amount of the loan, the $4800, because it is considered a distribution when a loan is not repaid.
The 10% penalty is on the whole distribution, so the full $4800.
So between taxes and penalty it will be about $1800.
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Deleted
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Post by Deleted on Aug 19, 2011 12:03:30 GMT -5
Thank for your help...much appreciated.
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mwcpa
Senior Member
Joined: Jan 7, 2011 6:35:43 GMT -5
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Post by mwcpa on Aug 19, 2011 14:36:25 GMT -5
as Archie notes the 10% penalty is on the early withdrawn amount, or $4,800 * 10% or $480... and federal income tax will be in the rate 25% bracket as long as taxable income is below 139ishK and AMT does not bite you.... so maybe 1680-1700 in federal tax and penalty cost overall....
Do not forget about state and local tax issues that may exist also.
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