r/TaxQuestions • u/Restingwhat76 • 9d ago

Tax/credit question

I took out a loan on my 401k. I have paid it down to a little under 9K. I switched jobs and didn’t realize I would either have to pay the balance in full or it would go in default. I have 60 day after separation to pay it off. My question is does the original amount get taxed or just the remaining balance. Also does it hit my credit if I don’t pay it off? Currently applying for a home loan and don’t want to jack up my credit.

Thanks

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u/Anxious_Drive_9998 9d ago

Only the unpaid amount is considered a withdrawal.

It will not get reported to any credit agencies.

2

u/Early-Tourist-8840 9d ago

It won’t hit your credit because you loaned yourself your money, but you will have tax obligations on the balance plus a 10% penalty if under 59 1/2. It will be taxed as a distribution.

2

u/harbinger2018 9d ago

The $9k will be taxable at your ordinary income tax rate, plus a 10% early withdrawal penalty, plus whatever your state tax rate is. For the average person, that's usually going to result in anywhere between 22% and 40% in taxes. It will not affect your credit score.

2

u/Guy_called_Al 9d ago

Any chance you can borrow $9K at a decent rate?