UnThreaded | Threaded | Whole Thread (25) | Ignore Thread Prev | Next
Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308369  
Subject: Re: Borrowing from your 401(k) Date: 10/27/2013 12:47 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Don;t you get taxed at like 25% on the monies you borrow?

Not when you borrow - only if you don't pay it back. And since most 401(k)loans require payments to come out of your paycheck, before you can get to the money, as long as you remain working at the job that's associated with the 401(k) plan where you took out the loan, there's very little chance that you won't pay it back.

The problem comes when you leave your job, either voluntarily or involuntarily. And it can actually be a lot worse than 25%. Many plans require that you pay back the balance of the loan within a short period of time (often 30, 60 or 90 days) after leaving employment, or the remaining balance on the loan will become a distribution, and will be taxed at your marginal rate, plus a 10% penalty if you are younger than 59 1/2, for the federal taxes. At current federal rates, that could be up to 39.6% for your marginal rate, plus 10% in penalty. Then if your state has income taxes and penalties, you would also get hit with another, say 10% in taxes and penalties. So all in, you could be taxed close to 60% of the distribution amount.

AJ
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (25) | Ignore Thread Prev | Next

Announcements

TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement