401k loan

Forum|Forum|2 years ago
October 25, 2023
1 reply
19 views

I took out a 401k loan, and I see my automatic repayments are being deducted after taxes. Does the entire loan repayment become taxed, or just the interest on the 401k loan?

Ask the Experts - Extension - Sept 2023

Best answer by Paul_W1

Hi Brian DNY

I am following up from the additional reply. Your loan repayment is not taxable unless you default. To help clarify, your repayment is probably coming out of your paycheck. This payment is after all other required taxes come from your paycheck. You are not paying taxes on the repayment. I have had a situation like this to me so I am confident that you are not being taxed. As long as you can make the repayment, your loan will not default which then will trigger a 1099-R on the unpaid balance. If you have additional questions, my suggestion is to talk with the 401k administrator and they most likely will provide further insight about the loan repayment. I hope that I have provided additional clarification to answer your question. Have a great rest of your day.

Terri Lynn

Level 6

Hi BrianDNY,

No the loan and the interest will not be taxed. The loan allows you to avoid paying the taxes and penalties that come with taking an early withdrawal. Additionally, the interest you pay on a 401(k) loan is added to your own retirement account balance. even though it is on an ater-tax basis.

For more information on loans from retiurement accounts check these links:

IRS: FAQ's Regarding Retirement Account Loans

Tax Benefits of your 401K

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Please feel free to reach out with any additional questions and . thank you so much for attending! . Please have an amazing rest of your day!Terri H.. **Say "Thanks," by clicking the thumb icon at the bottom of the post.** Mark the post that answered your question by clicking on "Mark as Best Answer.”.

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BrianDNYAuthor

Level 2

I'm confused...if the loan repayments are being taken out of my paycheck after taxes, then I'm essentially paying taxes on that loan as if it was income. How do I avoid being double taxed on that loan amount? (Once on the loan repayments, then again when I actually withdraw)

P

Paul_W1Answer

Level 5

Hi Brian DNY

I am following up from the additional reply. Your loan repayment is not taxable unless you default. To help clarify, your repayment is probably coming out of your paycheck. This payment is after all other required taxes come from your paycheck. You are not paying taxes on the repayment. I have had a situation like this to me so I am confident that you are not being taxed. As long as you can make the repayment, your loan will not default which then will trigger a 1099-R on the unpaid balance. If you have additional questions, my suggestion is to talk with the 401k administrator and they most likely will provide further insight about the loan repayment. I hope that I have provided additional clarification to answer your question. Have a great rest of your day.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"