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Closing a 401k with an outstanding balance.

Okay I lost my job but still have a 401k to close. There is 800 in the account and a 400 remaining on a loan I took out last year. When I close the account rather than keeping what I owe they will send me the entire 800 with the expectation I pay back the remainder of the loan. WE re flat broke and about to loos our home. Do I pay them the money and keep the 400 or keep all of the much needed money and add it to my debt seeing as we will be bankrupt in less than a year anyway. Part of me say screw it let me keep the money adn part of me wants to pay it form the check...

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Anonymous

Asked by Anonymous at 2:04 PM on Jun. 2, 2011 in Money & Work

Answers (7)
  • On the 800 you will be paying your current tax rate plus another 10%. Then they take you will owe the full balance of the loan. So you may end up with 100 or 200.
    Anonymous

    Answer by Anonymous at 2:06 PM on Jun. 2, 2011

  • Either way you will pay. I think they'll take it out before sending you the remainder. But I know nothing about finances.
    meooma

    Answer by meooma at 2:09 PM on Jun. 2, 2011

  • They made a point to say they could not take it out before hand. That is what I originally wanted.
    Anonymous

    Comment by Anonymous (original poster) at 2:14 PM on Jun. 2, 2011

  • Don't close this yet ... we just went through this with hubby's 401k. I have some errands to do and will get back to this question after while.

    However, each 401k has it's own rules. It might be a good idea to call and ask them.

    SpiritedWitch

    Answer by SpiritedWitch at 2:16 PM on Jun. 2, 2011

  • Given your situation, I'd take it all now.
    yesmaam

    Answer by yesmaam at 2:17 PM on Jun. 2, 2011

  • its funny but honestly you borrowed against your own money and you have to pay it back. doesn't that sound funny. i would take it all now and you will pay at the end of the year on taxes. or roll it over into a IRA.
    lucky35

    Answer by lucky35 at 2:57 PM on Jun. 2, 2011

  • Okay, this is what we did ...

    We had taken out a few small loans and when he went out on disability, those loans just sort of went into limbo. When the three years ended (his company held his position for 3 yrs in case he was able to go back to work) the loans were considered early distribution of the 401k. Which means that we had to pay the 10% penalty for early withdrawal. We left what was remaining in the 401k (after the loans) with the company and unless the market totally tanks, he should get that when he turns 65. Hopefully there will a good upturn in the market and it will grow some.
    SpiritedWitch

    Answer by SpiritedWitch at 8:55 AM on Jun. 3, 2011

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