$7500 ev tax credit.

[Geroll75]

My wife and I just purchased a Tesla that is eligible for the tax credit. We take delivery in about 10 days. My question is, I’m taking money, a Loan, out of my 401k to use as a down payment.  Right now I claim 2 on my federal taxes. I withhold 12% of my paycheck and that 12% goes strait into my 401k. The loan I will be taking out will take about $45 from my paycheck every week to pay for the loan over time. I want to take full advantage of the $7500 tax credit. My question is, I assume if I reduce the percentage from say 12% to 5% into my 401 k (federal) I will owe federal taxes next year. I assume the the $7500 ev credit will cover the amount owed, up $7500. Correct? This will in effect 1) give me a little more on my weekly pay check which will cover the money being taken out weekly for the loan and 2) should help me take full advantage of the $7500 tax credit. Am I correct on this or am I missing something? Thanks for your input…

[Mike9241]

yes you are missing that your 401k will receive less money and over time there will be less available when you retire. you also have to pay the 401k interest on that loan which is non-deductible personal interest. $45/wk is only about $2k per year or $10k  hardly enough to pay for a Telsa. According to IRS regulations, 401(k) loans must be repaid in “substantially equal payments that include principal and interest and are paid at least quarterly.” You must repay the loan (typically through payroll deductions) within five years. Failure to repay and you have a taxable distribution and possibly penalties if this is an early withdrawal. 

[Geroll75]

Hi. What I was thinking is my main goal is to take advantage of the credit. I’m taking out a loan for about $9k. I plan on paying it off pretty early. Less than 2 years. But am I correct if I do change my percentage from, I’m guessing here, from 12% to say 4-5% ? I take home about $600 a week. It does charge me about 8% to take out a loan. But in the end I’m paying myself that 8% correct? Wife and I are splitting the down payment. Is there anything I’m missing? I just wanna lower the percentage so it covers the weekly loan deduction and that I owe enough money next year to get most of the ev rebate….