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Marvin,EA
Marvin,EA, Enrolled Agent
Category: Tax
Satisfied Customers: 1663
Experience:  Enrolled to Represent Taxpayers Before The IRS
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I will be 54 in a couple of weeks and recently have been laid

Customer Question

I will be 54 in a couple of weeks and recently have been laid off from my job. I have a 401k that I recently took a loan out on in February of this year. I have on open Workers Comp claim. I intended to have surgery on my arms in September of this year but with my recent job loss, I have hastened that process. The loss of my job however has put me in financial straights. After 11 years of employment I only received 2 weeks severence pay. Instead of collecting Unemployment, I will be collecting Workers Comp benefits but they will not start until the end of the month. I fully intend to look for a job while I am out on WC, I will be unable to work until around the end of September.   I am looking at possible cashing in my 401k. I know my WC benefits will not be taxable on my Income Tax both on my Federal Return & NY State Return. What impact could cashing in the balance of my 401k actually have on me? I am marriied & my spouse does work. My job provided 1/2 our income.
Submitted: 5 years ago.
Category: Tax
Expert:  Marvin,EA replied 5 years ago.
Hello and thank you for using Just Answer. Any withdrawal from your 401K Plan will be tax at your regular tax rate. You may be able to avoid the 10% early withdrawal penalty if your withdrawal is made due to your disability. How much will you withdrawal from your 401K in 2007? Do you have any other taxable income in 2007?
Customer: replied 5 years ago.
Unfortunately this doesn't help me. You are talking about 2007. I am talking today. 2009
Expert:  Marvin,EA replied 5 years ago.
Sorry the tax year should be 2009.
Customer: replied 5 years ago.

Unfortunately, I do not see where the information I may receive will be much help to me. Do not process any charges on my American Express card.

Expert:  Marvin,EA replied 5 years ago.

The year I should have ask for your tax information should have been 2009 not 2007, sorry. If you took a loan from your 401K Plan and do not repaid the loan the amount received will be treated as a taxable distribution. You will receive Form 1099R by February 1, 2010 to report the taxable amount of the loan if you do not repaid the loan. There will also be a 10% early withdrawal penalty on the amount reported on the Form 1099R. You can file an exception to the 10% penalty for early withdrawal because of your disability. File IRS Form 5329, www.irs.gov/pub/irs-pdf/f5239.pdf, with your tax return.

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