401k to pay bills.

[ken7carol]

Question i took money out of my 401k in july to pay bills etc will i have to account for this money if i file chapter 7 in july i know the last 6 months is what counts on the means test which would be jan to june.

[ken7carol]

401k income

And would this be income i should worry about? Does it make any different what i do with this money? Have not filed yet.

[AngelinaCatHub]

Ken7: Oh I wish you had not done this. You just gave up your future untouchable retirement funds to pay something you wish to bk on? I hate to make you feel uncomfortable, but the facts are, you get to pay a 10% penalty to IRS, as well as regular income taxes on it. As far as income, I don't know. It was a sheltered asset. It may not be now. If you pay this back under the terms of the loan (It was a loan I hope?) pay it back.

I sure wished you came here lurking a long time ago. You would see this is not good. I am known for my ability to be too "nice", but I must be quite candid here. This was not good.

As far as your second question, yes, you must ask your lawyer. After he says what I have said, take his advice. I wish you well and PLEASE tell us what your attorney suggests. 'Hub

P.S. if it were bills and not CC's yes account for it. But, none the less, to raid your sheltered savings is not a good practice.

[AngelinaCat]

Ken7carol: this is one of the most stupid things we did--to liquidate 'Hub's 401k to pay bills. We got a 10% penalty plus paying IRS back for it.

We are discharged now, but living only on 'Hub's Social Security, and my unemployment which will run out at any time. At 56, I cannot get another FT job and I don't know if I will get my PT job back in the Fall.

We sure could use that money...... I raided every single *d* penny bank in the house today trying to get get by until Wednesday, when 'Hub gets his SS check......

[LSUTiger32]

I am pretty sure that money taken from a 401K is considered income. The good news is that I am also pretty sure that if you show you spend the money on household expenses and bills that you will be OK. It may delay your filing a bit though if you cannot show that you still spent more than you made. You will likely fail the first part of the test, but you may be able to get through under the expenses part.

[Logan]

Question i took money out of my 401k in july to pay bills etc will i have to account for this money if i file chapter 7 in july i know the last 6 months is what counts on the means test which would be jan to june.

Did you borrow from your 401k or did you withdraw it from your 401k? Big difference between the two.

[AngelinaCatHub]

redundant post

[HHM]

Neither count as income for purposes of the means test. But, if the amount is sizable, you could have some income tax consequences for the early withdraw.

It is simply unfortunate that you did so since 401K's are 100% protected in BK.

[Flamingo]

And would this be income i should worry about? Does it make any different what i do with this money? Have not filed yet.

First, as you know by now, you should not have touched your 401(k). Secondly, the bad news is is yes this increased your income for tax purposes and probably also for your pre-filing period. The amount you took out will be listed as a distribution on your tax return for this year and you will have to pay a 10% penalty on the amount plus taxes. You will need to make an accounting of what you used the money for and provide that information to your attorney (amount taken out of your 401k and a breakdown of how used).

[ken7carol]

I borrowed it from ira not 401k

did you borrow from your 401k or did you withdraw it from your 401k? Big difference between the two.

i forget i borrowed it from my ira not 401k i used the money to make payments on house i want to keep.

[LSUTiger32]

i forget i borrowed it from my ira not 401k i used the money to make payments on house i want to keep.

Disclose it to your attorney. I am sure since you used it to pay the house that it will not be a big deal. I think any decent attorney can make that go away.

[ken7carol]

i forget i borrowed it from my ira not 401k i used the money to make payments on house i want to keep.

schwab said i had 30 or 60 days to pay back without penalty so i guess its either or.

[jribe]

i forget i borrowed it from my ira not 401k i used the money to make payments on house i want to keep.

technically you can't "borrow" from an IRA. What schwab is telling
you is that you by law have 6o days to roll it back into an IRA before you would get penalized. Are you under age 591/2? If you are, there is a 10% penalty for the withdrawl, plus you have to pay an applicable state/federal taxes on the money.

[LSUTiger32]

In some situations yes you can borrow from a 401K. Many places allow you to borrow from it and then pay it back with interest.

I don't think OP is worried about taxes or any of that, he wanted to know if he will have to include it in is BK income.

[ska]

I don't see how this can be considered income since it was your money that you put in to begin with. However, maybe any interest earned would be considered income.

Ken7Carol, I took out a huge portion of my 401K to try to get caught up with bills. I know exactly how you feel. At the time it felt like I was making the right decision, but now I wished I wouldn't have touched it ($20k) and filed BK over a year ago. But, what's done is done. I can't go back. I have to do what is best for me (us) now and for the future. Likewise, I wish you the best. Keep us informed; it would be interesting to find out how this would affect your income (in BK terms).