401k counted as income

[debtfreedom]

Hi to all,
I have been reading this forum, happened to stumble across it, and wanted to say thank you to everyone for the great information. This is a scary time for many people and with having to research information on a topic that I personally never expected to have to research. Not a place I ever thought I would be, as I am sure most of you can relate to.

A couple of questions that I can't find the answers to if anyone can help.
My company has just laid off 1,800 people (fun times aren't these!?!) and I was wondering if I take a distribution from my 401k to help get through this time, will that distribution be counted as income for the means test?

In addition, my husband works in AK and we are going to move there because we will be losing our home and he has had to pay to fly back and forth. If we live there, we won't have the expense for him flying and we can survive on his income, now that I won't have one. Things have been bad for my income for quite some time, and we have just been hanging on but now things are a complete mess with not having a job.

We have missed our first payments on credit card debit last month, unfortunatley we have made some major mistakes and have a large amount of unsecured debt, especially since the companies have upped the APR to 30%+. We are not planning to file until July 1st in Alaska so that my one last commission check that I will receive in December will drop off and we will qualify for Chapter 7 after 6 months. I have read where some people have been able to hold off the lawsuits/wage garnishment for some time and am wondering if we will be able to make it until July 1st. Any feedback or advice is very much appreciated.

Also, if we qualify for the means test, we can file Chapter 7, even if in the past in sales I have done well??? I mean, just because there was some good times is no guarantee of the future earnings, especially in these hard times which I think will be looked upon later as another deep "Depression" (Not just a recession).

Anyway, I wanted to use the 401k distribution (about $5,000) to help us with our move that will be expensive. Not sure what to do on this.

Any help or feedback on any of these issues is much appreciated.

I pray for everyone that is going through these hard times. I know most people never thought or expected to be here and I have to think that everything does happen for a reason and that our lives will be much better in the future after we get through this horrible time and, personally, will NEVER touch a credit card again in my life. I now view them as pure evil.

Take care to all going through this.

[justbroke]

Short answer is that distributions from a Retirement account before age of retirement (and especially before age 59 and 1/2) are taxable "income".

Therefore, it would count against you as income. You should probably take out a LOAN against your 401(k) instead. At least, with a loan, most Bankruptcy Districts allow you to pay that loan back. Plus, you won't get hit with all the penalties AND it is NOT income.

[DaisyMae]

Yes that 401K is income. BUT-

It won't affect your means test if you are not filing until next July, so it's a moot point. That has a six month look back period. You have a long time to plan and take advantage of the process.

[Flamingo]

Since you have no job now cannot take out a loan on your 401(k) because you will not be able to pay it back. Your 401(k) will be held by your employer until you move it to your new employer, move it to an IRA or take it out as a distribution. If you do the latter, whatever you take out will be taxed by state and federal taxes and you will also have a penalty to list when you file your taxes. The distribution will be income on your tax returns. In the long run, with the taxes and penalty on your money, I would not touch your 401(k); however, if you are in dire straits, do that as your last resort.

Thousands are being laid off everywhere in the US on a daily basis. The front page is plastered with that information every day. I mentioned yesterday to my husband I have noticed lighter traffic in the mornings now on my long commute to work. Either people are carpooling or with all the layoffs, just not on the road or not heading out shopping. My husband is in retail and there are grumblings his store may be closed. However, if that happens it appears he has the option to go to another store in the area. But there is no guarantee. So many people are living like this now and realizing they should not have purchased all that stuff on credit cards because the reality sets in when you just cannot pay those bills with no income. You realize after a while it is just material stuff that you cannot resell at even a fraction of what you paid for it or not be able to sell it at all.

Best of luck to you.

[Mark80]

I took some money out of my 401K over the 6 month lookback period and it didn't effect my filing. Although broken down a few thousand over 6 months isn't a huge jump in income. The thing that is screwey to me about that is how the courts could try and plan a Chapter 13 payback plan with early distributions included. How is anyone suppose to keep that up over a 60 month plan anyways?

Maybe thats why my Attorney didn't bat an eye when I broke the news to them and said not to worry about it.

[DaisyMae]

Early penalty, yes-

But would you rather pay a penalty, or watch your whole account disappear into thin air....

[justbroke]

I took some money out of my 401K over the 6 month lookback period and it didn't effect my filing. Although broken down a few thousand over 6 months isn't a huge jump in income. The thing that is screwey to me about that is how the courts could try and plan a Chapter 13 payback plan with early distributions included. How is anyone suppose to keep that up over a 60 month plan anyways?

Well, the income determinations are not to plan what your payments are going to be. This has been litigated to death.

Your projected disposable monthly income (PDMI) is not just simply your disposable monthly income (DMI) multiplied by 36 or 60.

The key for including certain income in the "Calculation of Current Monthly Income (CMI)" is really for the so-called means test. It's used to determine if you're below median income or not which affects how your DMI is calculated.

For example, my DMI is negative. However, I am paying a positive 2% to my unsecured creditors (good faith really, and to avoid any equity issues).

[TEW]

Short answer is that distributions from a Retirement account before age of retirement (and especially before age 59 and 1/2) are taxable "income".

Therefore, it would count against you as income. You should probably take out a LOAN against your 401(k) instead. At least, with a loan, most Bankruptcy Districts allow you to pay that loan back. Plus, you won't get hit with all the penalties AND it is NOT income.

You can take 12 equal monthly distributions if you are over age 50 BUT it is a percentage of the total value of the you can not stop it for 5 years IRA check out IRS pub 509 this is with out penalty but the distributions will be taxes as income.