401k to pay bills.

[eddiep]

It seems really weird to me too and believe me I asked my lawyer many times about this because I got a loan from family and a gift from family but thoes didn't count but the 401k loan does. I guess it has something to do with it being my income to begin with. We had to wait for it to drop off because it did push us over median income.

[ska]

I dont know if this is a local issue but in my case a loan from my 401k did count as income.

You know, I really think the means test is twisted! How can this be considered "income." Is a person going to get a 401k loan every six months? I doubt it. Plus, you have to pay the loan back and the means test doesn't count the payment as a deduction. What a loop whole against someone looking for financial relief. Isn't it obvious that the debtor is trying very hard to get ahead, but in the end still had to file. Blah, that stinks!

[eddiep]

I dont know if this is a local issue but in my case a loan from my 401k did count as income. You have a pretty unusual situation in that it is taken out in july and you are filing in july so technically you have to report only jan to june income. Make sure you tell your lawyer about it, because it may come out. On the day you file you will have to account for any money you have on your person, in the bank and stuffed in your mattress so make sure you are prepared for this.

I took out a loan off my 401k and I wouldn't recommend it but I do not regret it, we too would have lost our home if we didn't and our financial situation did turn around so going forward we will be able to afford our house.

[ska]

See the highlighted sentence above. If your 401k funds are held out pretax (as the majority are), your income for that tax year was reduced by those funds saved (take a peek at your paystubs). Therefore, if you withdraw those funds, they become taxable and are added back as income on your tax return for the year in which withdrawn and you are taxed with that added back into your other income for that year, plus a 10% penalty.

That is correct. I should have elaborated a little on my post. I was thinking in the case of the means test. You cannot count 401k contributions as a deduction on the means test, so I do not see why they would count taking money out of a 401k as income.

I think the trustee may ask how the money was spent if it was recently taken out. I took out money over a year ago. It was disclosed on my paperwork, but I was never questioned.

[Flamingo]

I don't see how this can be considered income since it was your money that you put in to begin with. However, maybe any interest earned would be considered income.

Ken7Carol, I took out a huge portion of my 401K to try to get caught up with bills. I know exactly how you feel. At the time it felt like I was making the right decision, but now I wished I wouldn't have touched it ($20k) and filed BK over a year ago. But, what's done is done. I can't go back. I have to do what is best for me (us) now and for the future. Likewise, I wish you the best. Keep us informed; it would be interesting to find out how this would affect your income (in BK terms).

See the highlighted sentence above. If your 401k funds are held out pretax (as the majority are), your income for that tax year was reduced by those funds saved (take a peek at your paystubs). Therefore, if you withdraw those funds, they become taxable and are added back as income on your tax return for the year in which withdrawn and you are taxed with that added back into your other income for that year, plus a 10% penalty.

[ska]

I don't see how this can be considered income since it was your money that you put in to begin with. However, maybe any interest earned would be considered income.

Ken7Carol, I took out a huge portion of my 401K to try to get caught up with bills. I know exactly how you feel. At the time it felt like I was making the right decision, but now I wished I wouldn't have touched it ($20k) and filed BK over a year ago. But, what's done is done. I can't go back. I have to do what is best for me (us) now and for the future. Likewise, I wish you the best. Keep us informed; it would be interesting to find out how this would affect your income (in BK terms).

[LSUTiger32]

In some situations yes you can borrow from a 401K. Many places allow you to borrow from it and then pay it back with interest.

I don't think OP is worried about taxes or any of that, he wanted to know if he will have to include it in is BK income.

[jribe]

i forget i borrowed it from my ira not 401k i used the money to make payments on house i want to keep.

technically you can't "borrow" from an IRA. What schwab is telling
you is that you by law have 6o days to roll it back into an IRA before you would get penalized. Are you under age 591/2? If you are, there is a 10% penalty for the withdrawl, plus you have to pay an applicable state/federal taxes on the money.

[ken7carol]

i forget i borrowed it from my ira not 401k i used the money to make payments on house i want to keep.

schwab said i had 30 or 60 days to pay back without penalty so i guess its either or.

[LSUTiger32]

i forget i borrowed it from my ira not 401k i used the money to make payments on house i want to keep.

Disclose it to your attorney. I am sure since you used it to pay the house that it will not be a big deal. I think any decent attorney can make that go away.

[ken7carol]

I borrowed it from ira not 401k

did you borrow from your 401k or did you withdraw it from your 401k? Big difference between the two.

i forget i borrowed it from my ira not 401k i used the money to make payments on house i want to keep.

[Flamingo]

And would this be income i should worry about? Does it make any different what i do with this money? Have not filed yet.

First, as you know by now, you should not have touched your 401(k). Secondly, the bad news is is yes this increased your income for tax purposes and probably also for your pre-filing period. The amount you took out will be listed as a distribution on your tax return for this year and you will have to pay a 10% penalty on the amount plus taxes. You will need to make an accounting of what you used the money for and provide that information to your attorney (amount taken out of your 401k and a breakdown of how used).

[HHM]

Neither count as income for purposes of the means test. But, if the amount is sizable, you could have some income tax consequences for the early withdraw.

It is simply unfortunate that you did so since 401K's are 100% protected in BK.

[AngelinaCatHub]

redundant post

[Logan]

Question i took money out of my 401k in july to pay bills etc will i have to account for this money if i file chapter 7 in july i know the last 6 months is what counts on the means test which would be jan to june.

Did you borrow from your 401k or did you withdraw it from your 401k? Big difference between the two.