401K default
Hi Terry,
I was 62 when I took a loan on my 401K. I was repaying it through an amortization at work. When I turned 65 last year, I retired. I owed a balance of about $12K. Am I being taxed on the original amount, or just the balance?
What percentage am I being taxed on? Am I being penalized 10% on top of tax?
Thank you
Terry Says
Consult your plan manager and your accountant. When you leave the plan, any unrepaid loan is considered a withdrawal — and added to your ordinary taxes in that year. But since you are over age 59-1/2, at the time of this unexpected “withdrawal”, the 10% penalty should not apply — even though you took out the loan when you were younger.
But why didn’t you ask this question EFORE you “retired”? I would have advised you to borrow some money to repay the loan, then roll over the entire account to an IRA –and keep the money growing. At age 62,statistics say you have another 30 years to live! Please un-retire and start saving again!!
