How are taxes computed if I have defaulted on a loan from my 401k?

Answer by  DawnMarie (22)

When you default on a 401k loan, the remaining balance of the loan is treated the same as if you had taken a distribution. The penalty is calculated as twenty percent of the default. The total amount of the default is then added to your current years taxes as ordinary income.

Answer by  LeheckaG (1826)

Depending on what you mean by "default"? A default on a 401-K loan would likely be treated as an "early distribution". As such it would face an (IRS.Gov) "early distribution" tax penalty, in addition to income taxes as (either normal taxable or retirement) income.

Answer by  Liz59 (10966)

Well the total amount of default that has been added, will be used to calculate your taxes. It will convert over with a 20% penalty.

Answer by  debbie80 (161)

The balance due on the loan in default will become taxable income to you in the year you defaulted and you will also incur an additional 10% penalty for early withdrawal if you have not reached retirement age.

Answer by  gamergirl24 (85)

A 401k loan default is called a deemed distribution and is treated just like a withdrawal. You will be subject to regular income tax plus a 10% early withdrawal penalty.

Answer by  worker12 (293)

Their is a 10% penalty for early withdrawl ,because you defaulted, the full loan amount ,taxed at 30% unless you paid on some of that loan back

Answer by  PiperHaley (110)

Your taxes will be computed as if you took a distribution. It will be fully taxed, and if your under 591/2 you will be accessed a 10 percent penalty.

Answer by  tamarawilhite (17883)

You owe your current income tax rate on that loan as well as the 10% penalty. If you are in the 15% bracket, you pay 25% to the IRS.

Answer by  Liz59 (10966)

Well if you defaulted on your loan, then you have to pay 10% of that tax into your deductible as well. Include this in your taxes statement to not be wary.

Answer by  tamarawilhite (17883)

You owe taxes on the entire amount from your 401K, plus a 10% penalty. So if you are in the 25% income tax bracket, you'll owe 35% in taxes.