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Asked 1/24/2012
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401K Help Please..... I recently took out a 401k loan for $2500, vested balance is stating $10,000. Due to an overseas move I am terminating employment and wish to cash out, employer does not contribute anyway. Question being will this loan amount be deducted from the $10,000 as to pay back? On a cash out will I then be taxed on $12,500 assuming 30% for taxes and fees.Am confused as to how this all works? If my calculations are correct then I would net a check for $3,750? Is this correct I have read on recent posts that upon a cash out any unpaid loan amount is deducted automatically from vested balance. Thanks to someone in making sense of all this...... |
Answer 1/1 - Submitted 4/21/2012
First, prior to you receiving the $2500 loan you have agreed to repay this amount under certain terms and agreement. So if you are not going to repay it, be prepared to be charged the taxes for early withdrawal( before age 59 1/2), and you are also responsible for the interest and all other maintenance fee that you have agreed to when you received this loan. So, technically, if you cash out, you are actually cashing out (10,000) -(2500 + taxes+ interest + fees) for the loan you have taken out. Let's call this calculation for the first transaction. For the second transaction (cashing out of the remaining balance) you will be charged the appropriate income taxes on this plus all the necessary taxes. You may confirm this with your 401k maintenance Co.
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