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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3179
Experience:  IRS licensed Enrolled Agent and tax instructor
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I'm resigning from a state job and I had just rolled in funds

Customer Question

I'm resigning from a state job and I had just rolled in funds from a former job and borrowed from them. They said it will be treated as taxable income since I won't be have the payments payroll deducted. If I contribute the same about to my new employer's retirement plan, would that be a wash for taxes I would have to pay on the now taxable income?
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.
HI. My name is ***** ***** I will be happy to help you. If you leave a job and have outstanding 401k/403 loan the loan will be treated as distribution. You can only roll over what's still in your retirement account, but you cannot contribute additional funds. The distribution will be included in your taxable income and if you are not 59 1/2 you will also have to pay 10% penalty on the distribution. Mathematically speaking, yes it looks like a wash but because your contribution will be treated as pretax and your employer will not account for it when he calculate your tax withholding, you will still owe the income tax plus penalty, if applicable.
Expert:  emc011075 replied 1 year ago.
I see you read my respond. Do you have any questions? Is there anything else I can help you with today?