401k Disbursement tax question?

I recently changed jobs, and my 401k wasn t huge for that job, and I already had an IRA, so I went ahead and took the disbursement for the entire amount when I left. I had gotten a loan for $3,000 the year before, and it was almost paid off. The total disbursement was $6000. Since the $2700 I had already paid back

I recently changed jobs, and my 401k wasn t huge for that job, and I already had an IRA, so I went ahead and took the disbursement for the entire amount when I left. I had gotten a loan for $3,000 the year before, and it was almost paid off. The total disbursement was $6000. Since the $2700 I had already paid back on the loan was after taxes, would that be taxed again at the disbursement?

Best Answer:

Matt H: A 401k loan principal and interest are paid back with "after tax" money (not deducted from your gross income) to discourage 401k loans. So you would effectively pay double tax on the part of the loan you paid back.

You will still be taxed (plus 10% penalty if under age 59.5) on the entire disbursement + $300 loan balance, except for whatever you rollover of the disbursement (including any withholding) and the loan balance within 60 days of when it was disbursed.

Other answer:

Matt H:
a 401k loan principal and interest are paid back with "after tax" money (not deducted from your gross income) to discourage 401k loans… so you would effectively pay double tax on the part of the loan you paid back…

you shall still be taxed (plus 10% penalty if under age 59…5) on the entire disbursement + $300 loan balance, except for whatever you rollover of the disbursement (including any withholding) and the loan balance within 60 days of when it was disbursed…

curtisports2:
Yes. That is the major drawback of borrowing from a tax-deferred account. You are repaying the loan with after-tax dollars, and those dollars will be taxed again when you cash out – and in this case, you'll have to pay the 10% early-withdrawal penalty on money you were already taxed on. Why didn't you do a rollover to a self-directed IRA? There would be no penalty, and while you'd still be paying tax on money that was already taxed (the loan repayment), you'd be both deferring the tax and letting that money grow.
Judy:
The whole disbursement is taxed. The $3000 you borrowed had NOT been taxed.
Bob:
You will be taxed on the total amount that was disbursed to you.
Steve D:
Yes – don't confuse the loan with the pre-tax contribution you made. You received a tax deferral on the original $2,700 you paid in, borrowed and then paid back. The $300 will also be included since it was not paid back.
Palmer:
you shall be taxed on the total amount that was disbursed to you…

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