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.
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
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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)
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.