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Using CARES Act to pay off 401k loan?
Posted on 8/5/20 at 1:49 pm
Posted on 8/5/20 at 1:49 pm
I have to be missing something here so please help. I have about 6000 left on a loan I borrowed through my 401k. Am I able to withdraw 6000 from my 401k under CARES Act then turn around and pay that loan off? Essentially paying the debt off and dropping the payment while keeping my 401k amount the same as when the loan was current?
2
Posted on 8/5/20 at 2:45 pm to GAFF
quote:
. I have about 6000 left on a loan I borrowed through my 401k. Am I able to withdraw 6000 from my 401k under CARES Act then turn around and pay that loan off?
If you meet the qualifications than yes, but that 6K will be taxed over 3 years (without penalty).
Posted on 8/5/20 at 3:35 pm to LSUFanHouston
Over 3 years federal tax and this year for state and no penalty for early withdrawal which is good.
Posted on 8/5/20 at 4:35 pm to reboil
And all the experts on this board said it is never a good idea to borrow from your IRA, just have to make sure you do it right before a world wide pandemic hits and the govt authorizes 10 trillion dollars in aid lol
Posted on 8/5/20 at 6:21 pm to Tigerpaw123
401k loans are terrible as you are essentially paying federal taxes twice. Once when you payback the loan with after tax dollars and once when you actually withdraw the money.
Posted on 8/5/20 at 7:46 pm to Maderan
quote:
401k loans are terrible as you are essentially paying federal taxes twice.
That's a common misconception and not true.
The biggest reason not to use a 401k loan is if you get laid off/leave the company the balance could be due immediately. Though that's not a hard rule. My company's 401k gives you 10 years to repay even if you are no longer with the company for any reason.
Posted on 8/5/20 at 8:02 pm to gpburdell
If you don’t pay it back immediately isn’t it taxed as income and the remaining amount due goes back to your vested 401k balance?
People also fail to realize that each payment made, the interest portion goes right back into your 401k. If the market goes down, it may not be that terrible to be paying a 401k loan back.
People also fail to realize that each payment made, the interest portion goes right back into your 401k. If the market goes down, it may not be that terrible to be paying a 401k loan back.
Posted on 8/5/20 at 8:30 pm to Paul Allen
quote:
If you don’t pay it back immediately isn’t it taxed as income and the remaining amount due goes back to your vested 401k balance?
Nope. When you get the loan, it isn't counted as income at all. Unless you miss payments and default then the loan will be treated as an early distribution then you'd owe income taxes and penalties.
Yes, you are paying interest to yourself which is better than paying to someone else imo. It's just not tax deductible like a HELOC.
Posted on 8/7/20 at 10:26 pm to GAFF
Fidelity gave me option to stop loan payments for FY20 and I took it. Want to save that cash and pay it off.
I am pretty agresssive on investments so don't mind loan. Which almost a risk free 4% int you pay yourself.
I might buy my next vehicle via loan depends on balance.
I am pretty agresssive on investments so don't mind loan. Which almost a risk free 4% int you pay yourself.
I might buy my next vehicle via loan depends on balance.
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