Taking 401K loan to pay for college

[AngelinaCat]

I'm over means as long as I am married. My marriage is not in good shape, but I haven't given up yet. As a individual I pass the chapter 7 means test and I would just take the loan after discharge. My daughter's mother and step father make about 200K, so we don't qualify for any grants etc. since she lives with them. I am going to pay for this I just need to find the best way. I make about 77K and my wife makes about 35K. Thanks for all the help...

Please explain. Are you now in a second marriage that is not in 'good shape'?

The daughter lives with her mother and stepfather? How old is she, and what were the terms of your support?

[GHG7F0]

Yes I am in a second marriage that is having trouble, but we are still trying. Yes my almost 20 year old daughter lives with her Mother and step father. Come September she will be attending a UC University. It's going to run about 24K a year. I will be responsible for half. I have no legal obligations of support to my child. Just the same she is my only child and I will make it happen, it's just a matter of how at this point.

[GHG7F0]

Also I did run the numbers through the means test and I am fine if I am separate. If I stay married I'm forced into a 13.

[kornellred]

401K loan payments are a legitimate expense when determining disposable income in Chapter 13 cases. If they were not, I would be paying $600 per month more to the Chapter 13 trustee. Instead, I am just putting back my own money into the exempt and sheltered 401K account, and paying myself interest, to boot!

So far, BK law has not been amended to force 401K loans to be converted to distributions. If that were to become the case, then a debtor's 401K loan would revert to a distribution, and would become income, and subject to income tax. The loan payment amount would be disposable income by default.

[MOMof3]

I have a 401k loan and I still contribute to my 401k plan each paycheck. I think just like a lot of things, it depends on your area, courts & trustee. The nice thing about 401k loans is the low interest and the fact that you are paying yourself back, the bad thing is that you lose out on any gains you would have made with that money had it stayed there. I think if you have exhausted all other possible resources, it's worth it, after all, it is YOUR money!!

[catleg]

I have both a 401k loan deduction and a 401k contribution deduction included in my chapter 13 plan.
It is all perfectly legal, thank God for Teddy Kennedy for putting this into BAPCPA.
The only problem is what your maximum loan payback period is, if it is less than 60 months it could require a step-up in plan payments.
You might also want to take out a car loan about a year before you file, with a 72 month payback.
Also bump your term life , medical, and disability insurances to the max "cadillac plan" at least 6 months before filing.