401k to pay bills.

[Flamingo]

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).

See the highlighted sentence above. If your 401k funds are held out pretax (as the majority are), your income for that tax year was reduced by those funds saved (take a peek at your paystubs). Therefore, if you withdraw those funds, they become taxable and are added back as income on your tax return for the year in which withdrawn and you are taxed with that added back into your other income for that year, plus a 10% penalty.

[ska]

See the highlighted sentence above. If your 401k funds are held out pretax (as the majority are), your income for that tax year was reduced by those funds saved (take a peek at your paystubs). Therefore, if you withdraw those funds, they become taxable and are added back as income on your tax return for the year in which withdrawn and you are taxed with that added back into your other income for that year, plus a 10% penalty.

That is correct. I should have elaborated a little on my post. I was thinking in the case of the means test. You cannot count 401k contributions as a deduction on the means test, so I do not see why they would count taking money out of a 401k as income.

I think the trustee may ask how the money was spent if it was recently taken out. I took out money over a year ago. It was disclosed on my paperwork, but I was never questioned.

[eddiep]

I dont know if this is a local issue but in my case a loan from my 401k did count as income. You have a pretty unusual situation in that it is taken out in july and you are filing in july so technically you have to report only jan to june income. Make sure you tell your lawyer about it, because it may come out. On the day you file you will have to account for any money you have on your person, in the bank and stuffed in your mattress so make sure you are prepared for this.

I took out a loan off my 401k and I wouldn't recommend it but I do not regret it, we too would have lost our home if we didn't and our financial situation did turn around so going forward we will be able to afford our house.

[ska]

I dont know if this is a local issue but in my case a loan from my 401k did count as income.

You know, I really think the means test is twisted! How can this be considered "income." Is a person going to get a 401k loan every six months? I doubt it. Plus, you have to pay the loan back and the means test doesn't count the payment as a deduction. What a loop whole against someone looking for financial relief. Isn't it obvious that the debtor is trying very hard to get ahead, but in the end still had to file. Blah, that stinks!

[eddiep]

It seems really weird to me too and believe me I asked my lawyer many times about this because I got a loan from family and a gift from family but thoes didn't count but the 401k loan does. I guess it has something to do with it being my income to begin with. We had to wait for it to drop off because it did push us over median income.