I was forced to use 401 k to pay off my home after foreclosure, is there any way to reduce the taxes on the money used?

I am now unemployed and can not possibly pay what they want Asked by newbie227852 32 months ago Similar questions: forced 401 pay home foreclosure reduce taxes money Business > Financial Planning.

Similar questions: forced 401 pay home foreclosure reduce taxes money.

There is no way to avoid the tax on the 401K money, but you may have been able to avoid the penalty I am really not quite sure what happened by your question. I assume you prevented your home from going into foreclosure by catching up on the payments. Once the home is foreclosed, they can’t force you to pay it off.

If your home went into foreclosure, and you used the money from your 401k to pay off the loan, then your home is not in foreclosure anymore. In any event, since 401k’s were never designed to be an emergency savings plan, the government makes it very difficult to get the money out of the plan without tax or penalty. There are two kinds of hardship withdrawals you could have taken.

The only way to get money out of the plan is to leave work, roll the 401(k) to an IRA and then you can take as much as you need. You will have to pay income tax and if you are under 59 1/2, a 10% penalty for early withdrawal. Or to make a withdrawal, you have to qualify for a hardship withdrawal and your plan has to allow one.

Some plans do not allow a hardship withdrawal. A hardship withdrawal may be made from a 401(k) only if the distributions is made on the account of an immediate and heavy financial need and the distribution is necessary to satisfy the financial need. I assume you left work before you were able to apply for a hardship withdrawal.

The determination of whether you have an immediate and heavy financial need is whether you have other resources reasonably available to the meet the need based on your specific situation. The distribution will not be treated as necessary to satisfy an immediate and heavy financial need if it can be satisfied from other resources that are reasonably available. So what you have to do is make a written representation that the need can not be relieved by: 1.

Reimbursement of compensation by insurance or otherwise. 2. By reasonable liquidation of your assets.3.By stopping elective contributions 4.

By other distributions or nontaxable loans from any other plans.5. By loans from commercial sources. The regulations state that the distribution will be deemed to be necessary to meet a financial need if you have obtained all other distributions and nontaxable loans currently available under all of your other plans.

And you can not resume contributions to your 401(k) for at least six months after receipt of the hardship distribution. Also, in the above cases, you still owe the 10% penalty for early withdrawal if you are under 59 1/2 and still have to pay income tax on the hardship withdrawal.So you need to do the calculation to see how much you need to withdrawal so you have the amount you need after you pay the taxes, assuming you qualify for the withdrawal. If the above conditions are met, you can use the money for: A primary home purchase Tuition, room and board and fees for the next twelve months for you, your spouse, your dependents or children (even if they are no longer dependent upon you) To prevent eviction from your home or foreclosure on your primary residence Severe financial hardship Tax-deductible medical expenses that are not reimbursed for you, your spouse or dependents.

Since you already have the money from your 401K, you did not have to qualify for the hardship withdrawal. But, since you have the money, you are already subject to the income tax and if under 59 1/2 the 10% penalty for early withdrawal. There is something called a non financial hardship withdrawal that avoids the 10% penalty, not the income tax, but you have to meet certain requirements.

They are: 1. You become totally and permanently disabled.2. Your medical debts exceed 7.5% of you adjusted gross income.

3. A court has ordered you to give money to a divorced spouse, a child or a dependent. 4.

You are permanently laid off, terminated, quit, or retire early in the same year you turn 55 or later.5. You use the amortization, annuitization, or minimum distribution tables to take equal payments for 5 years or until you reach 59 1/2, whichever comes last. So for example if you were 57 you would have to make the withdrawals until you were 62.

I don't know if you are over 55, but if you are, you may want to go back to your plan administrator and see if they will allow you to use number 4.At least this way you will avoid the 10% penalty. There may be a way that your tax bill may be reduced. I don’t know how much you took, but the money from your 401K is considered income for tax purposes.

Depending how much you took and how much other income you have, because you are currently out of work, you may wind up owing less tax because you may fall into a lower tax bracket. For example if your taxable income is less than $67,900 and you are married, your tax bracket is 15% and your tax as a percentage of income is 13.77%. If you are over $67,900 the bracket jumps to 25% or a tax as percentage of income of 13.79%.

Not much difference. If taxable income is less than $16,700 you are in the 10% bracket. But, if they withheld 20% and you wind up being taxed at 13.77% or less, you may get some money back, since they withheld at a 20% level.

I assume the institution that released your money followed the law and withheld 20%. If they did, at least the money is there to pay the tax. But, I am afraid there is no way to get around the tax.

The money went in before tax and the government wants the revenue back. This is one of the biggest problems with a 401K, contributing too much and not have enough liquidity elsewhere..

1 Um. Forced how? As far as I'm aware, a judge can't order you to do that.

Um. Forced how? As far as I'm aware, a judge can't order you to do that.

DO I HAVE TO PAY INCOME TAXES ON THIS MONEY. " "is there a certain type of estate planning where you can give your house to your kids without having them pay taxes? " "If I sell my former home and take all the proceeds and pay on my existing mortgage,do I still have to pay taxes on it?" "Do you have to pay taxes on money from school grants?

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Do I have to pay income taxes on this money.

I currently reside with my father and pay rent. If I inherit the home will my property taxes increase?

Do security home companies pay local income taxes.

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