Tax rate on 401K withdrawals to buy7 house
If I take out $150,000 dollars from my 401K to put a down payment on a house and I’m only able to pay back $120,000 within 60 days after I sell my house, how much tax is calculated on the $30,000 I can’t pay back? Last year I was in a 12% tax bracket, this year perhaps 14% tax bracket since I made more this year. I have heard you pay the tax based on your tax bracket. I have also heard I’ll pay 37% on the amount I could not pay back. How does that work?
Terry Says
YOUR PLAN IS A TERRIBLE ONE — FOR THE REASONS BELOW:
First of all, your employer must ok this as a loan if you are still working at the company.
Second, even if you have left the company, and thus can take a WITHDRAWAL, if you are under 59-1/2 there is a 10% penalty.
Third, check the “return” rules of your plan because if you are no longer employed there you will not be allowed to “replace” the money.
And yes, if you are allowed to take a loan and replace it within 60 days, any money NOT returned will be added to your ordinary income tax bracket — and will likely move you to a higher bracket. AND, if you’re retired, that extra amount could increase your Medicare Part B premiums.
AND FINALLY — What is the price of this house that you need to raid your retirement fund to put $150,000 “down paymewnt” on it??? That means its way too expensive for you — especially if you’re in the lowest tax bracket.
I’m treating your question seriously here — but it couldn’t be a more absurd plan. Please reconsider and take my advice: Don’t do it!!
