Social Connection
What are tax penalties when borrowing from 401K to pay for home, then laid off ?
May 18th, 2010 | 
Author: I borrowed from my 401K to purchase home. The terms of loan were payoff over 5 years. I was just laid off. I have to now pay back the amount in full. BUT I am also being told I will incur tax penalties. I thought there were no tax penalties when the loan is used for the purchase of a home ?
Popular Posts:
- Stocks Posting Sharp Losses In Early Afternoon Trading – U.S. Commentary
- TIer 5 Unemployment Extension Update 05/15/2010
- How does one qualify to receive the FED-ED unemployment insurance extension in California?
- NCESC Unemployment Benefits – www.ncesc.com « Breaking News
- How can i get money?I am a jobless person and don’t have any source of income with me.?
Incoming search terms:
- borrowing from 401k to pay off home
Tags:
If you take a loan and don’t pay it off before you leave the company, it is considered a withdrawal and is completely taxable along with a 10% penalty. Withdrawals for the purchase of a first home are usually not taxable from an IRA not a 401k but a loan is different.
If you do not pay back the loan right away, you will have to pay taxes and a 10% penalty on the balance.
There are no exceptions to paying the taxes. The first time homeowner exception to the 10% penalty applies to IRAs and not 401k’s.
Well, however told you that there were no tax penalties for borrowing from your 401k was wrong. It must be repaid with in a certain time frame. You’re getting laid off has nothing to do with your decision to use 401k money for a purchase of a home, it just makes things more complicated. Call IRS or see a tax preparer.
You can withdrawal up to $10,000 from an IRA penalty free to purchase your first home. This provision does not exist for 401k plan.
File Form 5329 and have the Penalty waived as you purchase a home: The penalty is 10% for early withdrawal…