401K

[kitoy42]

I borrowed $50K from my 401K in 2014 to buy some land. I paid it all back with the exception of roughly $18k due to being terminated. I received a 1099 for the balance, which I will have to pay tax on. Being that the funds were received in 2014; is there any exception on how the funds will be taxed this year?

[ColeenD3]

No, there is no exception for this particular situation. Since you did not pay back the loan, the balance is taxable and subject to penalty if you are under age 59 1/2. However, here may be other exceptions that could apply.

Please see this LINK for all possible exceptions.

[Opus 17]

The distribution is deemed to have occurred in the year you defaulted, not the year the money was paid.  If you are age 55 or older in the year you were terminated, you would be exempt from the 10% penalty for early withdrawal.  Otherwise, you will owe the penalty, plus all withdrawals from a pre-tax 401(k) are always subject to regular income tax.

For the future (and for other readers) you would have had 60 days from the date of termination to repay the remaining balance to avoid a deemed distribution with tax and penalties.  If you could have arranged a short term loan, you might have paid less interest than the penalty, plus had the money available to grow for your future retirement needs.