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Mark D
Mark D, Enrolled Agent
Category: Tax
Satisfied Customers: 989
Experience:  MBA, EA, Specializing in Business and Individual Tax Returns and Issues
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If you take a 401K withdraw and put part of it back into the

Resolved Question:

If you take a 401K withdraw and put part of it back into the 401k by paying of a tax-deferred 401k loan, is that portion of the funds considered income? It seems to me that it is like placing money into an IRA and should not be taxable. Thanks
Submitted: 3 years ago.
Category: Tax
Expert:  Mark D replied 3 years ago.

Mark D :

Hello, a 401k loan, when withdrawn, is not taxable as long as it is repaid on a schedule.

Mark D :

One way to look at it is that since the withdrawal is not taxed, the repayment of the withdrawal is not a deduction

Customer:

Mark, i took out a withdraw for 40K and used 17K to repay an existing 401k loan....the irs is telling me the 17k is taxable income ... i think they are wrong

Mark D :

These were separate 401ks?

Customer:

no...it is the same 401k ... i first took a loan, then i took a withdraw (40k), then used 17k to pay the original 401k loan

Customer:

that is, payoff the original 401k loan from the same 401k account

Customer:

i am saying that the 17k is non-taxable since it paid an existing 401k loan and went back into my retirement account...to me this is similar to putting the 17k into a separate ira account....at least that is my thinking

Mark D :

Unfortunately, the way you did it would make it taxable

Mark D :

if you have taken the 17K as a loan, it would not have been

Mark D :

but taking it to repay a loan is not the same as a rollever

Mark D :

not saying I agree with the rules, but those are the rules

Customer:

thanks mark

Mark D, Enrolled Agent
Category: Tax
Satisfied Customers: 989
Experience: MBA, EA, Specializing in Business and Individual Tax Returns and Issues
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