topic Check your plan documents. You might not be able to incre... in Retirement tax questions

I have defaulted on a 14,000 403 b loan and I would like to know how much I should increase my 403b contributions to minimize tax penalty in April 2019

rooneyfeeley — Thu, 06 Jun 2019 06:10:46 GMT

Will the $14,000 tax penalty I will be assessed in 2019 bump me up into another income bracket? Trying to assess how much I need to increase my 404b contributions by before year end

Your tax bracket depends upon your total taxable income....

SweetieJean — Thu, 06 Jun 2019 06:10:48 GMT

Your tax bracket depends upon your total taxable income. If you have the funds to add to the plan, why not just pay down the loan?

Increasing retirement contributions will not change the f...

Carl — Thu, 06 Jun 2019 06:10:49 GMT

Increasing retirement contributions will not change the fact that you defaulted on the loan. Upon default, an early withdrawal was taken from your tax deferred retirement account to pay the balance due on the loan. Now assuming you are not of retirement age, you will pay a 10% penalty on that early withdrawal (no way out of that) and you will also pay taxes on it. How much tax you pay will depend on what tax bracket you fall in. The early withdrawal will add to your taxable income for the year, and depending on the amount could very well put you in a higher tax bracket. Keep in mind also that contributions are limited to a percentage of your *earned* income too. Not sure, but I think it's still 15%.

Check your plan documents. You might not be able to incre...

SweetieJean — Thu, 06 Jun 2019 06:10:51 GMT

Check your plan documents. You might not be able to increase your contribution while there is an outstanding loan anyway.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-403b-contribution-limits">https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-403b-contribution-limits</a>

https://taxfoundation.org/2018-tax-brackets/ Remember st...

SweetieJean — Thu, 06 Jun 2019 06:10:53 GMT

https://taxfoundation.org/2018-tax-brackets/

Remember state taxes as well.

the $14,000 is included in taxable income. in addition th...

Anonymous — Thu, 06 Jun 2019 06:10:55 GMT

the $14,000 is included in taxable income. in addition there is an unavoidable 10% for early withdrawal if you're under 59 1/2.

so it would seem you need to increase the 403b contribution by $14,000 to avoid the regular income taxes. however, you need to talk to you plan administrator to see if this is possible.

Not sure why OP wants to do this, since the loan repaymen...

SweetieJean — Thu, 06 Jun 2019 06:10:56 GMT

Not sure why OP wants to do this, since the loan repayments were probably coming out of his/her paycheck anyway. Unless the loan is from a different job.