401k

[sosoo]

Advertisement - Members don't see this ad

does anyone know about 401k loans and default on payment? let's say your balance is 100k, and you take out 50k in loan. then u default on payment.

lets say your tax bracket is 25%, and the early withdrawal penalty is 10%.

does this mean your net amount that you get to keep in your pocket is 65k ? and since u already took out 50k in loan, they will simply send another 15k check to your mailbox?

 

[awval999]

does anyone know about 401k loans and default on payment? let's say your balance is 100k, and you take out 50k in loan. then u default on payment.

lets say your tax bracket is 25%, and the early withdrawal penalty is 10%.

does this mean your net amount that you get to keep in your pocket is 65k ? and since u already took out 50k in loan, they will simply send another 15k check to your mailbox?

Um... no.

If you default on a 401k loan they will send you 1099-R with the amount defaulted on it. You will add it to income when you fill out your 1040 the following year. It will be taxed at your marginal tax bracket plus the 10% penalty. You will have to come up with the money needed to pay the taxes. Or get put on a payment plan, I guess with the IRS.

 

[Momus]

does anyone know about 401k loans and default on payment? let's say your balance is 100k, and you take out 50k in loan. then u default on payment.

lets say your tax bracket is 25%, and the early withdrawal penalty is 10%.

does this mean your net amount that you get to keep in your pocket is 65k ? and since u already took out 50k in loan, they will simply send another 15k check to your mailbox?

Lol.

 

[Dred Pirate]

wow- this post just emphasizes my point you need to have a financial literacy class required to graduate high school.
I will break it down for you.
If you default you will have 50k left in your 401k.
If you defaulted on the entire 50k - you will get a 1099 for income of 50k - you will pay a $5,000 early withdrawal penalty (10%), plus you will have to pay income on 50k - $12,500 increase in your taxes if you are in the 25% tax bracket. So essentially you took 50k out of your 401k, but after you pay taxes and penalties you only have $32,500 left.

PS 401k loans are a bad idea - use as last resort.

 

[awval999]

wow- this post just emphasizes my point you need to have a financial literacy class required to graduate high school.
I will break it down for you.
If you default you will have 50k left in your 401k.
If you defaulted on the entire 50k - you will get a 1099 for income of 50k - you will pay a $5,000 early withdrawal penalty (10%), plus you will have to pay income on 50k - $12,500 increase in your taxes if you are in the 25% tax bracket. So essentially you took 50k out of your 401k, but after you pay taxes and penalties you only have $32,500 left.

PS 401k loans are a bad idea - use as last resort.

I disagree that "401k loans are a bad idea".

But... DEFAULTING on a 401k loan, well that's just asinine.

 

[sosoo]

Thanks. im just curious and wanted to know in advance.

 

[CUpharmD2013]

wow- this post just emphasizes my point you need to have a financial literacy class required to graduate high school.
I will break it down for you.
If you default you will have 50k left in your 401k.
If you defaulted on the entire 50k - you will get a 1099 for income of 50k - you will pay a $5,000 early withdrawal penalty (10%), plus you will have to pay income on 50k - $12,500 increase in your taxes if you are in the 25% tax bracket. So essentially you took 50k out of your 401k, but after you pay taxes and penalties you only have $32,500 left.

PS 401k loans are a bad idea - use as last resort.

401k loans are better than any other loan that you can get because the interest that you are paying is to yourself. It is only recommended if you are planning on staying full time with your employer for the life of the loan, otherwise you will incur the tax penalties and payments as described previously.

I disagree that "401k loans are a bad idea".

But... DEFAULTING on a 401k loan, well that's just asinine.

Defaulting on a 401k loan is not as asinine as you may think. If you take the loan out as a full time employee and then your circumstances change such that you are no longer a full time employee, you can default on your payment because you are not getting paid every pay period and thus they cannot take your payment out every pay period. In this case, some employers do not offer you the option of "making up" payments and after a certain amount of time you are considered "in default" even though you are still an employee of the company.

 

[Zelda840]

does anyone know about 401k loans and default on payment? let's say your balance is 100k, and you take out 50k in loan. then u default on payment.

lets say your tax bracket is 25%, and the early withdrawal penalty is 10%.

does this mean your net amount that you get to keep in your pocket is 65k ? and since u already took out 50k in loan, they will simply send another 15k check to your mailbox?

Yes and no. As someone else has mentioned, you will receive a 1099 R and have to include the deemed loan as taxable income (assuming they are not willing to let you continue to make payments - I have some clients who terminated employment years ago but still faithfully make payments on their loan to avoid the tax implications). However, you will also have the remaining $15,000 available to you. As it's over the $5k threshold for forceouts, you will not simply be mailed a check. You will get paperwork so you can choose to cash out, rollover, or leave in place.