1099R form tax question?

Question

I took out a loan against my 401k in 2004 and was injured on the job on jan 2005.The company i worked for kept me until dec 2005 then terminated my employment,then in july of 2006 I had to take my 401k and roll it over into a investment option.
I was sent a 1099R stating that the remaining part of the loan is taxable,i'm still disabled and still not working and probably will get my disability sometime in 2007.Question;-Do I have to pay taxes on the remaining part of my loan and also have to pay a penality even if I'm disabled and can't return to any kind of work?

Answer 1

If you have a loan against a 401k plan and leave the company for any reason you must immediately repay the balance of the loan or it will be subject to both tax as ordinary income and the additional 10% tax for early withdrawal.

There is an exception if you are totally and permanently disabled. That applies to the additional 10% tax only, the distribution is otherwise taxed as ordinary income in nearly all cases.

Here's a link to Form 5329 http://www.irs.gov/pub/irs-pdf/f5329.pdf and the instructions for Form 5329 http://www.irs.gov/pub/irs-pdf/i5329.pdf that should help clear that up.

You may be required to provide proof of your total and permanent disability when you claim that exception to the additional tax.

Good luck.

Answer 2

Yes, disability is not any kind of exemption for this. It may have been a reason for a hardship withdrawal, but since it was a loan, you will have to pay the penalty and taxes.

Anyone reading this, PLEASE, loans out of your 401k are a BAD idea. If you need the money that badly, you can get a hardship withdrawal, if you don't meet that criteria, you should NEVER get a loan!! Bad financial move!

Answer 3

Uh, well you see, you know if you, it could be that................ I ain't got a clue...